Question

In: Accounting

AEK Company purchased a computerized machine on January 1, 2019, for $2,800,000 for the purpose of...

AEK Company purchased a computerized machine on January 1, 2019, for $2,800,000 for the purpose of leasing it. The machine was expected to have an seven-year life from January 1, 2019, to have no salvage value, and to be depreciated on a straight- line basis. On January 1,2019, AEK leases the machine to U-Life Company at a total rental of $1,500,000, payable in four annual installments in the following acceleration pattern; 15% in the first two years, 25% in the third year and 45% in the last year. The lease payment begins on the lease signing contract date. In addition to the rent, U-Life is required to pay annual executory cost of $25,000 to cover unusual repairs and insurance. The lease does not qualify as capital lease for reporting purposes.

Required: Provide all necessary entries to record the lease transactions for 2019 and 2022 on the books of

  1. AEK Company
  2. U-Life Company
  1. AEK Company’s Book.

Date

Account Title

Debit

Credit

2019

Jan.1

Dec. 31

2022

Jan.1

  1. U-Life Company’s Book.

Date

Account Title

Debit

Credit

2019

Jan.1

2022

Jan.1

Solutions

Expert Solution

Step: 1 Calculation of amount of lease to be paid

Let Lease amount be then. it is given that AEK leases the machine to U-Life Company at a total rental of $1,500,000, payable in four annual installments in the following acceleration pattern; 15% in the first two years, 25% in the third year and 45% in the last year. Hence

= 1+ (115%) +1 + (115%) + 1 + (125%) + 1+ (145%) = $1500000

=1.15 + 1.15 + 1.25 + 1.45 = $1500000

= 5 = $1500000

= = $1500000/5

= = $ 300000

Depreciation calculation
Machine value- $2800000
life of machine -7 years
slm method applied

formula- total value-scrap value/life

=$2800000-0/7years

=$400000 per year

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine...
Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine Company estimated that the machine would have a life of four years and a $25,000 salvage value. Delta Machine Company uses the straight-line method to compute depreciation expense. At the beginning of year 3 (2020) Delta discovered that the machine was quickly becoming obsolete and would have little value at the end of its useful life. Consequently, Delta Machine Company revised the estimated salvage...
Knight Company purchased a machine on January 1, 2015, for $625,000 for the express purpose of...
Knight Company purchased a machine on January 1, 2015, for $625,000 for the express purpose of leasing it. The machine was expected to have a nine-year life from January 1, 2015, to have no salvage value, and to be depreciated on the straight line basis. On April 1, 2015, Knight leased the machine to McCracken Inc. for $150,000 a year for a four-year period ending March 31, 2019. The appropriate interest rate is 12% compounded annually. McCracken paid $150,000 to...
Knight Company purchased a machine on January 1, 2015, for $625,000 for the express purpose of...
Knight Company purchased a machine on January 1, 2015, for $625,000 for the express purpose of leasing it.  The machine was expected to have a nine-year life from January 1, 2015, to have no salvage value, and to be depreciated on the straight line basis.  On April 1, 2015, Knight leased the machine to McCracken Inc. for $150,000 a year for a four-year period ending March 31, 2019.  The appropriate interest rate is 12% compounded annually.  McCracken paid $150,000 to Knight on April 1,...
On January 1, 2019, Seek Company purchased a copy machine. The machine costs $960,000, its estimated...
On January 1, 2019, Seek Company purchased a copy machine. The machine costs $960,000, its estimated useful life is 8 years, and its expected salvage value is $60,000. What is the depreciation expense for 2020 using double-declining-balance method? Select one: A. $157,500 B. $ 105,000 C. $180,000 D. $240,000
On January 1, 2019, Chelsea Company purchased for $180,000 a new machine that has an estimated...
On January 1, 2019, Chelsea Company purchased for $180,000 a new machine that has an estimated useful life of ten years (or 550,000 stamping operations), after which the expected salvage value is $10,000. Under each of the following depreciation methods, calculate the depreciation expense for 2019. Please show work :) Required: Straight-line depreciation Double-declining balance depreciation Units-of-production depreciation, if 66,000 stamping operations were made in 2019
Gruman Company purchased a machine for $198,000 on January 2, 2019. It made the following estimates:...
Gruman Company purchased a machine for $198,000 on January 2, 2019. It made the following estimates: Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000 In 2019, Gruman uses the machine for 2,000 hours and produces 50,000 units. In 2020, Gruman uses the machine for 1,200 hours and produces 32,000 units. If required, round your final answers to the nearest dollar. Required: Compute the depreciation for 2019 and 2020 under each of the following methods:...
Company A purchased a lathe on January 1, 2019, at a cost of $45,000. At the...
Company A purchased a lathe on January 1, 2019, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Company A uses straight-line depreciation. At the beginning of 2021, Company A estimated the lathe to have a remaining life of four years with no residual value. For the year ended December 31, 2021, Company A would report depreciation expense of: A. $6750 B. $7050...
AZA Company purchased a machine on July 1, 2019. The machine cost $400,000 and has an...
AZA Company purchased a machine on July 1, 2019. The machine cost $400,000 and has an estimated residual value of $40,000. The expected useful life is 8 years. The machine is to be used for 100,000 machine hours. AZA’s year end is December 31. Required: a. Calculate the depreciation expense for 2019 and 2020 using the straight-line method. Also list the Accumulated Depreciation Balances at December 31, 2019 and December 31, 2020. b. Calculate the depreciation expense for 2019 and...
SBS Company purchased a new machine on January 1, at a cost of $420,000. The machine...
SBS Company purchased a new machine on January 1, at a cost of $420,000. The machine has an expected useful life of four years and an expected salvage value of $40,000. The company expects to use the machine for 1,300 hours in the first year, 1,900 hours in the second year, and 900 hours in the third and fourth year, respectively. (a) Calculate Depreciation Expenses for each year using Straight-Line Method Year Depreciation Expenses 1 $ 2 $ 3 $...
Adelphi Company purchased a machine on January 1, 2017, for $90,000. The machine was estimated to...
Adelphi Company purchased a machine on January 1, 2017, for $90,000. The machine was estimated to have a service life of ten years with an estimated residual value of $5,000. Adelphi sold the machine on January 1, 2021 for $30,000. Adelphi uses the double declining method for depreciation. Using this information, how much is the gain or (loss) for the equipment sale entry made on January 1, 2021. Enter a loss as a negative number.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT