Vaughn Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Bramble Medical Center for a period of 10 years. The normal selling price of the machine is $535,210, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be $16,000. The hospital will pay rents of $64,800 at the beginning of each year. Vaughn incurred costs of $256,000 in manufacturing the machine and $14,600 in legal fees directly related to the signing of the lease. Vaughn has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Bramble Medical Center has an incremental borrowing rate of 5% and an expected residual value at the end of the lease of $10,000.

Compute the amount of the initial lease liability.

Initial Lease Liability

$

Prepare a 10-year lease amortization schedule.

BRAMBLE MEDICAL (Lessee) Lease Amortization Schedule (Annuity Due Basis, GRV)
Beginning of Year		Annual Lease Payment Plus GRV		Interest on Unpaid Liability		Reduction of Lease Liability		Lease Liability
Initial PV		$		$		$		$
1
2
3
4
5
6
7
8
9
10
End of 10
		$		$		$

Prepare all of the lessees journal entries for the first year.

Account Titles and Explanation	Debit	Credit
(To record the lease of x-ray equipment using finance lease method.)
(To record payment of annual lease obligation.)
(To record accrual of annual interest on lease obligation.)
(To record amortization expense for year 1 using straight-line method.)

Suppose Chambers Medical Center incurred $5,400 of document preparation costs after the execution of the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? The lease liability will .... The right-of-use asset will ....