Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease.
The title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is non-cancelable.
Payment Cash
Payment Effective
Interest Decrease
in balance
Balance
63,282
1 10,000 10,000 53,282
2 10,000 6,394 3,606 49,676
3 10,000 5,961 4,039 45,638
4 10,000 5,477 4,523 41,114
5 10,000 4,934 5,066 36,048
6 10,000 4,326 5,674 30,373
7 10,000 3,645 6,355 24,018
8 10,000 2,882 7,118 16,901
9 10,000 ? ? ?
10 10,000 ? ? ?
1. What is the effective annual interest rate?
a.12%.
b. 9%.
c. 11%.
d. 10%.
2. What would the lessee record as annual amortization on the right-of-use asset using the straight-line method?
a. $5,328.
b. $6,328.
c. $6,392.
d. $10,000.
3. What is the outstanding balance after payment 9?
a. $5,000.
b. $5,537.
c. $8,929.
d. $13,463.
