Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year per
ID: 2396264 • Letter: R
Question
Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year period. The lease agreement calls for annual payments in the amount of $16,000 on December 31 of each year beginning on December 31, 2018. Rumsfeld has the option to purchase the machine on December 31, 2021, for $20,000 when its fair value is expected to be $40,000. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 12%. Round your answers to the nearest whole dollar amounts. 1. Calculate the amount to be recorded as a right-of-use asset and the associated lease payable. 2. Prepare an amortization schedule for this lease. 3. Prepare Rumsfeld's journal entries for this lease for 2018 and 2019.
Explanation / Answer
Amount to be recorded right of use asset =[PVA 12%,3*Amount ]+[PVF 12%,3*Fair value at end of useful life]
= [2.69005*16000]+[.71178*20000]
= 43040.8+ 14235.6
= $ 57276.4 [rounded to 57276]
find present value annuity factor from annuity table (annuity due)at 12%
find present value factor from table
2)
3)
depreciation = [cost -salvage ]/useful life
= [57276-20000]/3
= 12425.33
year payment interest decrease in balance Value at end 31 dec 2018 16000 57276-16000=41276 2019 16000 41276*.12= 4953.12 16000-4953.12= 11046.88 41276-11046.88= 30229.12 2020 16000 30229.12*.12= 3627.49 16000-3627.49=12372.51 30229.12-12372.51= 17856.61 2021 20000 17856.61*.12= 2143.39 20000-2142.79= 17856.61 0Related Questions
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