Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Company leased a machine from Lessors, Inc. on January 1, Year1. Company agreed to make 10 payments of $20,000 each at the end of each

Company leased a machine from Lessors, Inc. on January 1, Year1. Company agreed to make 10 payments of $20,000 each at the end of each lease year. (The payment for Year1was due and made on 12/31/Year1.)

  • The interest rate implicit in the leasing agreement was 5%.
  • Title does not transfer to Company, so the machine will be returned to Lessors Inc. on December 31, Year10.
  • The equipment has no residual value, and has a 20-year estimated useful life.
  • On 1/1/Year1, the fair value of the machine being leased is $300,000.

Company's partial lease amortization schedule for the first two years appears below:

Payment

Interest Amount

Principle Amount

Lease payable Balance

1/1/Yr1 154,435
12/31/Yr1 20,000 7,722 12,278

142,157

12/31/yr2 20,000 ?? ?? ??

1.Is this a financing lease(F) or an operating lease(O) for Company? Answer with an F or O.

2.What amount will Company record as the right of use asset at the inception of the lease?

3.How much interest expense will Company record with regards to this lease inYear2? (Round to the nearest dollar.)

4. Based just on the information you have, how muchtotalexpense (not just interest expense) will Company record related to this lease over the 10 year term of the lease?

Enter JUST a number for answers 2,3, and 4 (no punctuation or text).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: James Jiambalvo

7th Edition

1119577721, 978-1119577720

More Books

Students also viewed these Accounting questions

Question

What reward will you give yourself when you achieve this?

Answered: 1 week ago