Refer to the following lease amortization schedule. The 10 payments are made ann

Question

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. 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 noncancelable.

What is the total effective interest paid over the term of the lease?

Payment Cash
Payment Effective
Interest Decrease
in balance Outstanding 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 ? ? ? 10 13,000 ? ? ?

Explanation / Answer

total effective interest =7487/74867 0.100004 10% Cash Effective Decrease oustanding year payment interest in bal bal 8 22,562 9 13,000 2256 10744 11818 10 13,000 1182 11818 0 total effective interes paid = sum of all effective interes 42133 answer

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