Question

American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton...

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 $5.1 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.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
1) Prepration of journal entry
Particulars Debit Credit
Lease Assets a/c Dr 5100000
To    lease Payable 5100000
2) PVIFA FOR 4 PAYMENT @ 11%
5100000/3.10245 = 1643862
Date Payment intt @11% principal balance
01-01-2018 5100000
31-12-2018 1643862 **561000 1082862 4017138
31-12-2019 1643862 **441885 1201977 2815161
31-12-2020 1643862 **309668 1334194 1480967
31-12-2021 1643862 **162896 1480967
6575448 1475448 5100000
3) preparation of the appropriate entries related to the lease
Particulars Debit Credit
31-12-2018 interest exp 561000
lease payable 1082862
cash 1643862
31-12-2020 interest exp 309668
lease payable 1334194
cash 1643862
Beginning balance*intt rate
**   2018 5100000*11% = 561000
2019 4017138*11%= 441885
2020 2815161*11%= 309668
2021 1480967*11%=162906
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton...
American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2016. In payment for the $4.1 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 11%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of...
Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year period ending December...
Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year period ending December 31, 2023. The lease agreement specified annual payments of $32,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2022. The company had the option to purchase the machine on December 30, 2023, for $41,000 when its fair value was expected to be $56,000, a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life...
On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease...
On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 14% rate of return for providing long-term financing. The lease agreement specified: Ten annual payments of $61,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $315,158. The lease qualifies as a...
Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2018. International Machines manufactured...
Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2018. International Machines manufactured the equipment at a cost of $89,000. Manufacturers Southern's fiscal year ends December 31. (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.) Related Information: Lease term 2 years (8 quarterly periods) Quarterly rental payments $16,000 at the beginning of each period Economic life of asset 2...
On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease...
On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 10% rate of return for providing long-term financing. The lease agreement specified the following: Ten annual payments of $60,000 beginning January 1, 2021, the beginning of the lease and each December 31 thereafter through 2029. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $354,849. The lease qualifies...
On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease...
On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 11% rate of return for providing long-term financing. The lease agreement specified the following: Ten annual payments of $67,000 beginning January 1, 2021, the beginning of the lease and each December 31 thereafter through 2029. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $402,029. The lease qualifies...
On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease...
On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 11% rate of return for providing long-term financing. The lease agreement specified the following: Ten annual payments of $61,000 beginning January 1, 2021, the beginning of the lease and each December 31 thereafter through 2029. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $346,464. The lease qualifies...
On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under...
On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $20,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $110,000 and were expected to have a useful life of eight years...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley Motors for a five-year...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley Motors for a five-year period with an option to extend the lease for three years. Rick’s had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension option. Annual lease payments are $14,000 due on December 31 of each year, calculated by the lessor using a 5% interest rate. The agreement is considered an operating lease. (FV of $1, PV of $1,...
On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period...
On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $434,644 and has an expected economic life of five years. Aqua expects the residual value at December 31, 2018, to be $70,000. Negotiations led to Maywood guaranteeing a $100,000 residual value. Equal payments under the lease are $140,000 and are due on December...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT