Refer to the following lease amortization schedule. The 10 payments are made annually starting with the inception of the lease. Title does not transfer to the lessee and there is no bargain purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.
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 |
? |
? |
? |
What is the effective annual interest rate?