Question

Exercise 15-29 (Aigo) Finance iease; purcnase options; iessee (LU15-, 15-0 Check my work 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 $45,000 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 $54,000 when its fair value was expected to be $69,000, 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. (Round your intermediate and final answer to the nearest whole dollar amount.)

Answer 1

ANSWER

1

Calculate the amount Federated should record as a leased asset

and lease liability for this capital lease.

total payment @ 10% after 3 payment = 2.7355 x $45,000 = $ 123099

3 periods @ 10% = .7513 x $54,000 = 40571

Total $163670

2.

Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term.

Date	Payment	Interest @10%	Principal	Balance
01/01/2021				163670.00
01/01/2021	45000.00	-	45000.00	118670.00
12/31/2021	45000.00	11867.00	33133.00	85537.00
12/31/2022	45000.00	8554.00	36446.00	49091.00
12/30/2023	54000.00	4909.00	49091.00	0.00

3.

Prepare the appropriate entries for Federated from the inception of the lease through the end of the lease term

Date	Particulars	debit	credit
01/01/2021	Leased Asset             To Lease Payable	163670	163670
01/01/2021	Lease Payable             To Cash	45000	45000
12/31/2021	Lease Payable Interest Expenses             To Cash	33133 11867	45000
12/31/2021	Depreciation Expenses             To Accumulated Depreciation (163670/6)	27278	27278
12/31/2022	Lease Payable Interest Expenses             To Cash	36446 8554	45000
12/31/2022	Depreciation Expenses             To Accumulated Depreciation	27278	27278
12/30/2023	Lease Payable Interest Expenses             To Cash	49091 4909	54000
12/31/2023	Depreciation Expenses             To Accumulated Depreciation	27278	27278