Question

Exercise 15-2 (Algo) Finance lease; calculate lease payments [LO15-2]

American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. The lease agreement for the $4.4 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, 2021.

2. Prepare an amortization schedule for the four-year term of the lease.

Record the beginning of the lease for American Food Services. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021

3. & 4. Prepare the appropriate entries related to the lease on December 31, 2021 and 2023.

Answer 1

Answer 4. sonces at the begining of legge Journal Entry for American food on_5994971,.30.. Barlon and Barbun Crporation leased a packaging machine to American food sevices Inc., In theseose, Barton and eyston. Corporatlan is lesson and Americ19.fool Sewise is. Jeiseemned - In lease agreement, lessee should make a annual payments to the lesson for the use of an asset. Lease Payment consists of interest and principal amount Date Jant 2011 " American fool sevices Ins... Joyingleñtvy at the begining of leyse on 379199 L 2012 Particulars Debit (6) Credit (8) leqsed Asset_Alc (Machine)_ o 4400000 To Lease_Payable Ale | 4400000 (Being to record initial lease of packaging machine for 4 years) Total 4400Ovo 14400000 2. Amortization Table for the four year term of leqre . for the preparation_Amstation schedule, where we have to first Glute_ the migloymlere flyments that has to be male each year, - minimum lepre present Value of Lense faymuqt Sym of Present vele factor of 11% for 4 years

$ 4400,000 E CI T(14) $ 4400.000 3.10245 Miginan lese Payment $14,18_236 American_food services, Inc. legre Amortization Schedyle Yeau I Lease Payments 11/2021 -202) Effective Interest Decrease in cul standing B Balance Balance C: 0/5 Balance X11% 1 : 6-0 Jesols by1996- 4400 000 484000 934236 3465764 381234 1037002 - 2428762 267164 15/072 1277690 :- 140546.. 1277690 2022 1418236 1418236 1418236 1418236 2023 2024 3,4 Journal Entries related to lease on December 31, 2001 and December 31, 2023 in the books of American food services, Inc. - At the year end, American food servise, Inc will reord lease payments inclusive of interest payment and pracipal Payment related to lease alco the depreciation this amortization - of asset has to be recortel.

American Food Services Journal Entries Inc. I credit ] Particulars Dec. 31,20|| Inlevert_Expense ale | Leque Payable Ale - To [ash Alo (Being to record first interest expense) Delit $ 484000 934236 - pr. 1418236 leare payment and 1100.000 lloo || Dec 31, 201|| Amortization Exzente Alo (4.4 million = 4 fangor To Leqsed Asset CMachlac) Being to record amortination expense of repied arsel) 100, 31023 | Intwest Expense Alo Dr. | 267164 Lease payable Ale L 1151072 - To cash Ale (Being to record third leare payment with Lintwest expense on lepse) 1418236 06:3|2013 Amortization Expense Ale 14.4 million = 4 years)_041100000 To leased Asset Ali Being to record amortization expense of Toodoo legg 5036472 Totyl 5036472