Answer:
Lease Amortization Schedule
a. The effective annual interest rate is:
= 10%.
b. The amount that the lessee would record as annual amortization on the right-of-use asset using the straight-line method is:
= $8,786.70
c. The outstanding balance after payment 9 is:
= $11,818.
Explanation:
a) Data and Calculations:
Payment Cash Payment Effective Decrease Outstanding
Interest in balance Balance
87,867
1 13,000 13,000 74,867
2 13,000 7,487 5,513 69,354
3 13,000 6,935 6,065 63,289
4 13,000 6,329 6,671 56,618
5 13,000 5,662 7,338 49,280
6 13,000 4,928 8,072 41,208
7 13,000 4,121 8,879 32,329
8 13,000 3,233 9,767 22,562
9 13,000 2,256 10,744 11,818
10 13,000 1,182 11,818 0
b) The effective annual interest rate = (1+i/n)^n - 1
where i = stated interest rate
and n = number of compounding periods (10 years)
= Effective interest/Outstanding balance
For example for year 10, the rate = $1,182/$11,818 * 100 = 10%
Using the straight-line method, annual amortization on the right-of-use asset = $87,867/10 = $8,786.70
The outstanding balance after payment 9 = $11,818 which is paid in year 10 with an interest of $1,182.
