Question

Rumsfeld Corporation leased a machine on December 31, 2020, for a three-year period. The lease agreement calls for annual payments in the amount of $18,000 on December 31 of each year beginning on December 31, 2020. Rumsfeld has the option to purchase the machine on December 31, 2023, for $20,000 when its fair value is expected to be $40,000. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 12%.

n, i                               PV of $1              PV, ordinary annuity               PV, annuity due

1 period, 12%                0.89286                                      0.89286                             1.00000

2 periods, 12%              0.79719                                      1.69005                             1.89286

3 periods, 12%              0.71178                                      2.40183                             2.69005

Required:

1. Calculate the amount to be recorded as a right-of-use asset and the associated lease payable.

2. Prepare an amortization schedule for Rumsfeld.

3. Prepare Rumsfeld's journal entries for this lease for 2020, 2021, 2022, and 2023.

Answer 1

(AB) Balar for lear boyment B DE CX 94657 491227 31-Dec2020 62657 1800 3,112.22 trelle tttibh 342.34.92 18000 31-Dec2021 52,234 97 5923.497 18.00 57,408.9K to hETHE 31 Dec 2022 first Row Calculation 68657 + 1810 = 44651 44657 7107 4465.7 44657 + 4465.7 = 49122.7