Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year per
ID: 2395818 • 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 S40,000. 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 2019Explanation / Answer
The final lease payment should be on Dec.31, 2020 and not Dec.31,2021 since the lease period is only three years.
1. The right-of-use asset and the associatedlease payable is $43,040.
The formula for calculating is :
A = P(1-(1/(1+r)^n)/r) x (1+r), where P =$16,000, r = 0.12 and n=3 years
A = 16,000(1-(1/(1.12)^3)/0.12) x (1.12) = $43,040.
2. Amortization shcedule for lease:
3.
Date Beg.Bal. Interest Cash Lease Rental Expense Payment Accounted Dec.31,2018 43040 0 16000 16000 Dec.31,2019 27040 3245 16000 12755 Dec.31,2020 14285 1715 16000 14285 T o t a l 4960 48000 43040Related Questions
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