Please show work Exercise 15-2 Finance lease; calculate lease payments [L015-2]

Question

Please show work

Exercise 15-2 Finance lease; calculate lease payments [L015-2] American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. The lease agreement for the $5.5 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be five years with no residual value. Barton and Barton's implicit interest rate was 11%. (FV of $1. PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2018 2. Prepare an amortization schedule for the four-year term of the lease 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2018 and 2020 Answer is not complete Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3 and 4 Prepare an amortization schedule for the four-year term of the lease. (Enter your answers in whole dollars and not in millions Round your answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Lease Payments Effective Interest Decrease in Balance Outstanding Balance Year 5,500,000 4,616,864 883,136 2018 2019 2020 2021 Total 1,488,136 605,000 1.488,136 605,000 883,136 Req 1 Req 3 and4

Explanation / Answer

***Annual payment =Present value /PVA 11%,4

              = 5,500,000 / 3.10245

              = 1,772,792

2)

Lease Amortisation schedule Year Lease payment Effective Interest Decrease in Balance Outstanding Balance 2018 1,772,792 605000    [5500000*.11] 1,167,792 [1772792-605000] 4332208    [5500000-1167792] 2019 1,772,792 476543   [4332208*.11] 1,296,249 3035959   [4332208-1296249] 2020 1,772,792 333955 1438837 1597122 2021 1,772,792 175670 1597122 0 Total 7091168 1591168 5500000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---