Rumsfeld Corporation leased a machine on December 31, 2020, for a three-year period. The lease agreement calls for annual payments in the amount of $18,000 on December 31 of each year beginning on December 31, 2020. Rumsfeld has the option to purchase the machine on December 31, 2023, for $20,000 when its fair value is expected to be $40,000. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 12%.

n, i PV of $1 PV, ordinary annuity PV, annuity due

1 period, 12% 0.89286 0.89286 1.00000

2 periods, 12% 0.79719 1.69005 1.89286

3 periods, 12% 0.71178 2.40183 2.69005

Required:

1. Calculate the amount to be recorded as a right-of-use asset and the associated lease payable.

2. Prepare an amortization schedule for Rumsfeld.

3. Prepare Rumsfeld's journal entries for this lease for 2020, 2021, 2022, and 2023.