FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026.
- 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 2025.
- The company had the option to purchase the machine on December 30, 2026, 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 lessor’s implicit
rate of return was 10%.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Required:
- Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease.
- Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term.
- Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.
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