On January 1, 2024, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by NIC. Portions of the United Leasing’s lease amortization schedule appear below: January 1 Payments Effective Interest Decrease in Balance Outstanding Balance 2024 $ 244,813 2024 $ 27,000 $ 27,000 $ 217,813 2025 $ 27,000 $ 23,959 $ 3,041 $ 214,772 2026 $ 27,000 $ 23,625 $ 3,375 $ 211,397 2027 $ 27,000 $ 23,254 $ 3,746 $ 207,651 2028 $ 27,000 $ 22,842 $ 4,158 $ 203,493 2029 $ 27,000 $ 22,384 $ 4,616 $ 198,877 — — — — — — — — — — — — — — — 2041 $ 27,000 $ 10,852 $ 16,148 $ 82,505 2042 $ 27,000 $ 9,076 $ 17,924 $ 64,581 2043 $ 27,000 $ 7,104 $ 19,896 $ 44,685 2044 $ 49,600 $ 4,915 $ 44,685 $ 0 What is the asset’s residual value expected at the end of the lease term? What is the effective annual interest rate? Enter your answer as a percent rounded to 1 decimal place. What is the total amount of lease payments for United? What is the total amount of lease payments for NIC?
On January 1, 2024, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by NIC. Portions of the United Leasing’s lease amortization schedule appear below: January 1 Payments Effective Interest Decrease in Balance Outstanding Balance 2024 $ 244,813 2024 $ 27,000 $ 27,000 $ 217,813 2025 $ 27,000 $ 23,959 $ 3,041 $ 214,772 2026 $ 27,000 $ 23,625 $ 3,375 $ 211,397 2027 $ 27,000 $ 23,254 $ 3,746 $ 207,651 2028 $ 27,000 $ 22,842 $ 4,158 $ 203,493 2029 $ 27,000 $ 22,384 $ 4,616 $ 198,877 — — — — — — — — — — — — — — — 2041 $ 27,000 $ 10,852 $ 16,148 $ 82,505 2042 $ 27,000 $ 9,076 $ 17,924 $ 64,581 2043 $ 27,000 $ 7,104 $ 19,896 $ 44,685 2044 $ 49,600 $ 4,915 $ 44,685 $ 0 What is the asset’s residual value expected at the end of the lease term? What is the effective annual interest rate? Enter your answer as a percent rounded to 1 decimal place. What is the total amount of lease payments for United? What is the total amount of lease payments for NIC?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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On January 1, 2024, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by NIC. Portions of the United Leasing’s lease amortization schedule appear below:
| January 1 | Payments | Effective Interest | Decrease in Balance | Outstanding Balance |
|---|---|---|---|---|
| 2024 | $ 244,813 | |||
| 2024 | $ 27,000 | $ 27,000 | $ 217,813 | |
| 2025 | $ 27,000 | $ 23,959 | $ 3,041 | $ 214,772 |
| 2026 | $ 27,000 | $ 23,625 | $ 3,375 | $ 211,397 |
| 2027 | $ 27,000 | $ 23,254 | $ 3,746 | $ 207,651 |
| 2028 | $ 27,000 | $ 22,842 | $ 4,158 | $ 203,493 |
| 2029 | $ 27,000 | $ 22,384 | $ 4,616 | $ 198,877 |
| — | — | — | — | — |
| — | — | — | — | — |
| — | — | — | — | — |
| 2041 | $ 27,000 | $ 10,852 | $ 16,148 | $ 82,505 |
| 2042 | $ 27,000 | $ 9,076 | $ 17,924 | $ 64,581 |
| 2043 | $ 27,000 | $ 7,104 | $ 19,896 | $ 44,685 |
| 2044 | $ 49,600 | $ 4,915 | $ 44,685 | $ 0 |
- What is the asset’s residual value expected at the end of the lease term?
- What is the effective annual interest rate?
Enter your answer as a percent rounded to 1 decimal place.
- What is the total amount of lease payments for United?
- What is the total amount of lease payments for NIC?
Expert Solution
Step 1
The asset's residual value expected at the end of the lease term is $0.
The effective annual interest rate can be calculated using the formula: (1 + nominal rate)^(1/number of payment periods per year) - 1
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