Question
Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year period. The lease agreement calls for annual payments in the amount of $17,500
Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year period. The lease agreement calls for annual payments in the amount of $17,500 on December 31 of each year beginning on December 31, 2018. Rumsfeld has the option to purchase the machine on December 31, 2021, for $21,500 when its fair value is expected to be $31,500. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 8%.
n/i | PV of $1 | PV, ordinary annuity | PV, annuity due | ||||||
1 period, 8% | .92593 | .92593 | 1.00000 | ||||||
2 periods, 8% | .85734 | 1.78326 | 1.92593 | ||||||
3 periods, 8% | .79383 | 2.57710 | 2.78326 | ||||||
Required: 1. Calculate the amount to be recorded as a right-of-use asset and the associated lease payable. 2. Prepare Rumsfeld's journal entries for this lease for 2018 and 2019.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started