Question

On January 1, 2016, National Insulation Corporation (NIC) leasedoffice space under a capital lease. Lease payments are madeannually. Title does not transfer to the lessee and there is nobargain purchase option. Portions of the lessee's leaseamortization schedule appear below: Jan. 1 Payments EffectiveInterest Decrease in Balance Outstanding Balance

Jan. 1	Payments			Effective Interest			Decrease in Balance			Outstanding Balance
2016											235,000
2016		22,000						22,000			213,000
2017		22,000			18,105			3,895			209,105
2018		22,000			17,774			4,226			204,879
2019		22,000			17,415			4,585			200,294
2020		22,000			17,025			4,975			195,319
2021		22,000			16,602			5,398			189,921
—		—			—			—			—
—		—			—			—			—
—		—			—			—			—
2033		22,000			7,632			14,368			75,423
2034		22,000			6,411			15,589			59,834
2035		22,000			5,086			16,914			42,920
2036		46,568			3,648			42,920			0

1. What is NIC’s lease liability at the inception of the lease(after the first payment)?

2.

What amount would NIC record as a leased asset?

3.

What is the lease term in years?

4.	What is the asset’s residualvalue expected at the end of the lease term?

5.

How much of the residual value is guaranteed by the lessee?

6.	What is the effective annual interest rate? (Round youranswer to 1 decimal place.)

7.	What is the total amount ofminimum lease payments?

8.	What is the total effectiveinterest expense recorded over the term of the lease?