In: Accounting

# Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year period. The lease agreement...

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 $40,000. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 12%. Round your answers to the nearest whole dollar amounts. 1. Calculate the amount to be recorded as a right-of-use asset and the associated lease payable. 2. Prepare an amortization schedule for this lease. 3. Prepare Rumsfeld's journal entries for this lease for 2018 and 2019. ## Solutions ##### Expert Solution Amount to be recorded right of use asset =[PVA 12%,3*Amount ]+[PVF 12%,3*Fair value at end of useful life] = [2.69005*16000]+[.71178*20000] = 43040.8+ 14235.6 =$ 57276.4   [rounded to 57276]

find present value annuity factor from annuity table (annuity due)at 12%

find present value factor from table

2)

 year payment interest decrease in balance Value at end 31 dec 2018 16000 57276-16000=41276 2019 16000 41276*.12= 4953.12 16000-4953.12= 11046.88 41276-11046.88= 30229.12 2020 16000 30229.12*.12= 3627.49 16000-3627.49=12372.51 30229.12-12372.51= 17856.61 2021 20000 17856.61*.12= 2143.39 20000-2142.79= 17856.61 0

3)

 Date Account debit credit 31 dec 2018 Leased machinery 57276 Lease payable 57276 31 dec 2018 lease payable 16000 cash 16000 31 dec 2019 Lease payable 11046.88 Interest expense 4953.12 cash 16000
 31 dec 2019 Depreciation expense 12425.33 Accumulated depreciation -leased machinery 12425.33

depreciation = [cost -salvage ]/useful life

= [57276-20000]/3

= 12425.33

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