Question

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 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 four years with no residual value. Barton and Barton's implicit interest rate was 10%. (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. 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2021 and 2023. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 and 4 Prepare an amortization schedule for the four-year term of the lease. (Enter your answers in whole dollars and not in millions. Round your answers to the nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease in Interest Balance Lease Payments Year Outstanding Balance 2021 2022 2023 2024 Total 010 Req1 Req 3 and 4 >

Answer 1

B A 1 1) 2 Date 3 Jan 1,2021 Debit General Journal Right of use asset Lease Payable (To record the right of use asset and lease payable) Credit 40,00,000 40,00,000 7 2) 8 PVAF(4 yrs, 10%) = 3.16987 9. 10 Annual Lease payments = Right of use Asset/[PVAF(4 yrs, 11%)] = $4,000,000/3.16987 11 12 Annual lease payments=1261881 13 14 Lease Amortization table for four years (Amount in S) 15 Effective Interest (10%) Decrease in Outstanding 16 Year Lease Payments (a) Balance (a-b) Balance 17 40,00,000 18 2021) 12,61,881 400000 8,61,881) 31,38,119 19 2022 12,61,881 313812 9,48,069| 21,90,050 2023 12,61,881 219005 10,42,876 11,47,174 21 2024 12,61,881 1147071 11,47,174 22 Totals 50,47,524 10,47,524 40,00,000 23 20

24 25 Date 26 Dec 31, 2021 27 28 Credit 4,00,000 8,61,881 12,61,881 General Journal Debit Interest Expense Lease Payable Cash (To record the first lease payment) Amortization Expense Right of use asset |(To record the amortization expense) 29 30 10,00,000 10,00,000 Dec 31, 2021 31 32 33 34 35 Date 36 Dec 31, 2023 37 38 39 40 Dec 31, 2023 41 Credit 2,19,005 10,42,876 12,61,881 General Journal Debit Interest Expense Lease Payable Cash (To record the third lease payment) Amortization Expense Right of use asset (To record the amortization expense) 10,00,000 10,00,000 42 43 44

B D А 1 1) 2 Date 3 Jan 1,2021 Credit Debit 4000000 4. General Journal Right of use asset Lease Payable (To record the right of use asset and lease payable) 4000000 7 2) 8 PVAF(4 yrs, 10 9 10 Annual Lease payments = Right of use Asset/[PVAF(4 yrs, 11%)] = $4,000,000/3.16987 11 12 Annual lease payments=1261881 13 14 Lease Amortization table for four years (Amount in S) 15 Decrease in Balance (a- Effective Interest (10%) (b) 16 Year Lease Payments (a) 17 18 2021 19 2022 20 2023 21 2024 22 Totals 23 1261881 1261881 11261881 1261881 =SUM(B18:B21) =(4000000*10%) =B18-C18 =(3138119*10%) =B19-C19 =(2190050*10%) =B20-C20 =(1261881 - 1147174)=B21-C21 =SUM(C18:C21) 4000000 Outstanding Balance 4000000 |=E17-D18 =E18-D19 =E19-D20 =E20-D21

Credit Debit =C18 =D18 =C26+C27 29 30 =4000000/4 =C30 24 25 Date General Journal 26 Dec 31, 2021 Interest Expense 27 Lease Payable 28 Cash (To record the first lease payment) Dec 31, 2021 |Amortization Expense 31 Right of use asset 32 (To record the amortization expense) 33 34 35 Date General Journal 36 Dec 31, 2023 Interest Expense Lease Payable 38 Cash 39 (To record the third lease payment) 40 Dec 31, 2023 Amortization Expense 41 Right of use asset (To record the amortization expense) 43 Credit Debit =C20 =D20 37 =C36+C37 =4000000/4 T=C40 42