Federated Fabrications leased a tooling machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $39,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2019. The company had the option to purchase the machine on December 30, 2020, for $48,000 when its fair value was expected to be $63,000 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 lessors 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.

1. 1/1/2018 Record the lease

2. 1/1/2018 Record the cash payment

3. 12/31/2018 Record the amortization of right-to-use asset for Federated

4. 12/31/2018 Record the lease payment

5. 12/31/2019 Record the amortization of right-to-use asset for Federated

6. 12/31/2019 Record the lease payment

7. 12/31/2020 Record the amortization of right-to-use asset for Federated

8. 12/31/2020 Record the final lease payment

Lease Amortization Schedule Effective Decrease in Payments Interest Balance Date Outstanding Balance 01/01/2018 12/31/2018 12/31/2019 12/31/2020 Total