Rumsfeld Corporation leased a machine on December 31, 2016, for a 3-year period.
ID: 2766153 • Letter: R
Question
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 $16,000 on December 31 of each year beginning on December 31, 2016. Rumsfeld has the option to purchase the machine on December 31, 2019, for $20,000 when its fair value is expected to be $30,000. The machine's estimated useful life is expected to be five years with no residual value. Rumsfeld uses straight-line depreciation for this type of machinery. The appropriate interest rate for this lease is 12%.
n/i PV of $1 PV, ordinary annuity Pv, annuity due
1 period, 12 %; 0.89286 0.89286 1.00000
2 periods, 12%; 0.79719 1.69005 1.89286
3 periods, 12%; 0.71178 2.40183 2.69005
1.) calculate the amount to be recorded as a leased asset and the associated lease liabiility.
2.) Prepare an amortization schedule for this lease.
Show Work.
Explanation / Answer
a)
Amount to be recorded as a leased asset and the associated lease liabiility = Annual payments*PVAD(12%,3) + Maturity Payment*PV(12%,3)
Amount to be recorded as a leased asset and the associated lease liabiility = 16000*2.69005 + 20000*0.71178
Amount to be recorded as a leased asset and the associated lease liabiility = $ 57,276.40
2)
Year Lease Payment Interest Lease Liability Amortised Carrying Value of associated lease liabiility 0 16000 0 16000 41276.4 1 16000 4953 11047 30230 2 16000 3628 12372 17857 3 0 2143 -2143 20000Related Questions
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