12 3 4 69 7 869 10 11 12 13 Davidson, Incorporated leased a machine from Barwick Corporation. Barwick completed construction of the machine on January 1, 2023. The lease agreement for the $6,000,000 (fair value and present value of the lease payments) machine specified 4 equal payments at the end of each year. The useful life of the machine was expected to be 4 years with no residual value. Barwick's implicit interest rate was 9%. Lease date Fair value and present value of lease payments Lease term Useful life of machine Residual value Barwick's implicit interest rate 14 1. Determine the amount of each lease payment using Excel's PMT function 15 January 1, 2023 $6,000,000 4 years 4 years $0 9% 16 2. Prepare the journal entry for Davidson, Incorporated at the beginning of the lease on January 1, 2023. $1,852,012 17 Date 18 January 1, 2023 19 20 General Journal Right-of-use asset Lease payable Debit 6,000,000 Credit 6,000,000 21 22 22 3. Prepare an amortization schedule for the 4-year term of the lease. 23 24 25 222222 26 27 28 29 Date Lease Payments Effective Interest Decrease in Balance Outstanding Balance January 1, 2023 $6,000,000 December 31, 2023 $1,852,012 $540,000 $1,312,012 $4,687,988 December 31, 2024 1,852,012 421,919 1,430,093 3,257,895 December 31, 2025 1,852,012 293,211 1,558,801 1,699,094 December 31, 2026 Totals 1,852,012 152,918 $7,408,048 $1,408,048 1,699,094 $6,000,000 0 30 31 4. Record the first lease payment on December 31, 2023. 32 Date General Journal 33 December 31, 2023 Interest expense 34 Lease payable Debit 540,000 1,312,012 Credit 35 Cash 1,852,012 36 37 5. Record the amortization of right-of-use asset on December 31, 2023. General Journal 38 Date 39 December 31, 2023 Amortization expense 40 Right-of-use asset 41 Debit Credit 1,500,000 1,500,000 42 43 6. Indicate the amounts related to the lease reported on the year-end balance sheets and income statements. Date Balance Sheet Amounts Right-of-Use Lease Liability Asset Income Statement Amounts Interest Expense Amortization Expense $0 44 45 December 31, 2023 46 December 31, 2024 47 December 31, 2025 48 December 31, 2026 49 50