Question

On January 1, 2019. ADC Company leased on equipment from 72, Inca The lease terms require annual payments or $20,000 for 20 years with the first payment being due on December 31, 2019. The interest rate on the lease is 5%, and ABC will use the double-declining balance method to record the amortization of the leased asset. Assume the equipment had a 25 year remaining useful life at January 1, 2019 and the lease contract requires the equipment to be returned to ZZ, Inc. at the end of the lease. Calculate the amount of amortization expense recorded on the leased asset in 2020. You will need to use the time value of money table factors posted in carmen to answer this question. To access these factors, click modules and then scroll to week 12. Click on the link labeled present & future value table factors. No credit will be awarded for this question using a means other than these table factors to answer this question. 22,428

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Answer 1

for formulas and calculations, refer to the image below -

X for year AB annual lease payment present value annuity factor (5%, 20 years) value of asset to be recorded I $ 20,000 12.4600 $ 249,200 straight line rate = 100%/20 = 5% double declining rate = 5% * 2 = 10% year amortization accumulated amortization carrying value of asset $ 224,280 $ 176,932 2019 2020 $ 24,920 $ 22,428 $ 24,920 $ 47,348 amortization expense in 2020 = $ 22,428

X fx year * annual lease payment 20000 present value annuity factor (5%, 20 years) 12.46 value of asset to be recorded =D2*D3 straight line rate = 100% / 20 = 5% double declining rate = 5%* 2 = 10% year amortization accumulated amortization carrying value of asset 2019 =249200*10% 2020 =E10*10% =C10 =D10+C11 =D4-D10 =E10-D11 amortization expense in 2020 = =C11