Question

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 $48,000 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 $57,000 when its fair value was expected to be $72,000, a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return 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. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.

Answer 1

Answer Page: No Yearo © Right of use arset & Leare liability Praesent value = $ 1.000 xeh terus - 448000 Keaent value = 48000 X (1+10 = 48000 X 0.90909 = $ 43636 Years Present Value = 48000? = 48000 X 0.82645 = $ 39670 Total present Value - 43636 + 48000 + 39670 = $ 131306 → 54000x Tot ronje = 54000. X 0.4513) = $42825 - Right of use assel-lease liabilitig = 13/306+42805 =$793) Right ng ose asset & lease liability = 6144,1317 "

WA Date Payments @ 101. balance Page: No ④ @ Amortization schedule Effective sterest - Previous cut sofanding balance X 10 %. Decrease in balance = Payments - effective interest Out ofanding balance = Previous outstanding balance - decrease in balance eft ective interest Decrease in outstanding balance 11,12021 $44,131 1/2021 $48000 $ 48000 12/31/2021 $48000 $ 12613 $35387 $90744 12) 31/2022 $48000 $9074 $38926 $51818 12/31)3023 654000 $ 5182 $51818 Jowinad entries $184131 Amortization expenses $ 126,131 $0 6 years = $29012

Date Page: No ® Debit I Gedit $ 174,131 $174,131 Jan", 2001 $ 48000 Jan's 2021 $48000 dec 31, 2021 $35387 $ 12613 $48000 $29022 dec 31, 2021 Particular Right of use asset lease payable lease payable cash Lease payable Interest expense cash Amortization expense Right of use asset Lease payable Interest expense cash Amortization expense Right of one asset - lease payable Interest expense - Cash --- Amortization expense Right of use asset : $29022 decl, $38926 $9074 2002 $48000 dec 31, 2022 $29022 - $29022 dec 31, $51818 2033 $5182 $ 54000 29022 Idec 31, 2023 $29022