Rumsfeld Corporatio payments in the amount of $17.500 on December 31 of each yea
ID: 2516437 • Letter: R
Question
Rumsfeld Corporatio payments in the amount of $17.500 on December 31 of each year beginning on Dece purchase the machine on December 31, 2021, for $21,500 when its fair value is expe useful life is expected to be five years with no residual value. The appropriate i n leased a machine on December 31, 2018, for a three-year period. The lease agreement calls for annual mber 31, 2018. Rumsfeld has the option to cted to be $31,500. The machine's estimated nterest rate for this leases % PV of $1 PV, ordinary annuityPV, annuity due 2 3 period, 8% periods, 8% periods, 8% 0.92593 0.85734 0.79383 9.92593 1.78326 2.57710 1.00000 1.92593 2.78326 Required 1. Calculate the amount to be recorded as a right-of-use asset and the associated lease liability. 2. Prepare an amortization schedule for this lease Complete this question by entering your answers in the tabs below Required 1 Required 2 Calculate the amount to be recorded as a right-of-use asset and the associated lease liability. (Round your answer to the nearest whole dollar amounts.) Leased asset/liability Required 2 >Explanation / Answer
1) As the lease payments start at the beginning of lease period, the present value annuity factor for annuity due (i.e. 2.78326) will be used for calculating right of use asset and associated lease liability.
Leased Asset/ Leased Liability = PV of annual lease payments+PV of purchase option
= [Annual Lease Payments*PVAF(3, 8%)]+[Purchase Price*PVF(3, 8%)]
= ($17,500*2.78326)+($21,500*0.79383)
= $48,707+$17,067 = $65,774
Therefore the amount to be recorded as a right of use asset and the associated lease liability will be $65,774.
2) Amortization Schedule (Amounts in $)
Particulars Payments (A) Effective Interest (B) Decrease in Balance (C = A-B) Balance 65,774 Dec 31, 2018 17,500 0 17,500 (65,774-17,500) = 48,274 Dec 31, 2019 17,500 (48,274*8%) = 3,862 13,638 (48,274-13,638) = 34,636 Dec 31, 2020 17,500 (34,636*8%) = 2,771 14,729 (34,636-14,729) = 19,907 Dec 31, 2021 0 (19,907*8%) = 1,593 (1,593) (i.e. increase in balance) 21,500Related Questions
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