Refer to the following lease amortization schedule. The five payments are made annually starting with the inception of the lease. A $2,000 bargin purchase option is exercisable at the end of the five-year lease. The asset has an expected economic life of eight years.
|
Lease Payment |
Cash Payment |
Effective Interest |
Decrease in Balance |
Balance |
|
34,600 |
||||
|
1 |
8,000 |
?? |
?? |
26,600 |
|
2 |
8,000 |
2,660 |
5,340 |
21,260 |
|
3 |
8,000 |
2,126 |
5,874 |
15,386 |
|
4 |
8,000 |
1,539 |
6,461 |
8,925 |
|
5 |
8,000 |
?? |
?? |
?? |
|
6 |
2,000 |
182 |
1,818 |
0 |
What is the effective annual inerest rate?
A. 9%
B. 10%
C. 11%
D. 20%
What would the lessee record as annual depreciation on the asset using the straight-line method, assuming no residual value?
A. $3,325
B. $6,920
C. $4,325
D. $5,320
What is the total interest paid over the term of the lease?
A. $42,000
B. $8,200
C.$7,400
D. $3,460
What is the outstanding balance after payment 5?
A. $1,818
B. $2,000
C. $2,182
D. $3,818
What would be the amount of interest expense recorded with payment 5?
A. $2,000
B. $893
C. $7,107
D. $1,107
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