M TEST # 2 B Admittad Students Baruch x Baruch Cello ge under raua- x A. pension

Question

M TEST # 2 B Admittad Students Baruch x Baruch Cello ge under raua- x A. pension Data For Galdman lason x x e D Not Secure ezto.mheducation.com/hm.tpx 2. 6.00 points Rumsfeld Corporation leased a machine on December 31, 2016, for a 3-year period. The lease agreement calls for annual payments in the amount of $18,500 on Dember 31 af tach year beginning Dn December 31, 2016. Rumsfeld has the option to purchese the machine on December 31, 2019, for $22,500 when ts fair value is expected to be 32,500, The machine's estimared useful life is expected to be six years with no residual value. Rumsfeld uses straight-line depreciation for this type of machinery. The appropriate interest rate for this lease is 12%. is 12%,- nvi 1 period, 12% 2 periods, 12% 3 periods, 1256 PV of $1 0.89288 0.79719 0.71178 PV, ordinary annuity 0.89286 1.68005 2.40183 PV, annuity due 1.00000 1.89286 2.89006 Required: 1. Calculate the armaunt ta be retarted 1 ased asset and the associated lease liability. asetlla 2. Prepare an amortization schedule for this lease. Effective Decrease Payments Balanco Balan Dec.31 2016 Dec 31 2017 Dac 31 2018 Dec.31 2019

Explanation / Answer

1 PV of payments 49766 =18500*2.69005 PV of BPO 16015 =22500*0.71178 Leased assed/liability 65781 2 Payments Effective interest Decrease in balance balance Initial 65781 Dec-31-16 18500 18500 47281 Dec-31-17 18500 5674 12826 34455 Dec-31-18 18500 4135 14365 20090 Dec-31-19 22500 2410 20090 0

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