Complete Question:
Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,600 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years.
Lease Cash Effective Decrease in Outstanding
Payment Payment Interest Balance Balance
41,236
1 8,800 ?? ?? 32,436
2 8,800 1,946 6,854 25,582
3 8,800 1,535 7,265 18,317
4 8,800 1,099 7,701 10,616
5 8,800 ?? ?? ??
6 2,600 147 2,453 0
Answer:
Total interest paid over the term of the lease is:
= $5,364
Explanation:
a) Data and Calculations:
Lease Cash Effective Decrease in Outstanding
Payment Payment Interest Balance Balance
a) b) c) d) e)
41,236
1 8,800 0 8,800 32,436
2 8,800 1,946 6,854 25,582
3 8,800 1,535 7,265 18,317
4 8,800 1,099 7,701 10,616
5 8,800 637 8,163 2,453
6 2,600 147 2,453 0
c) Effective interest rate = 6%( $1,946/$32,436 * 100)
d) Decrease in balance = (b) - (c)
e) Outstanding balance = Outstanding Balance minus (d)
Total interest paid over the term of the lease = $5,364
