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American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. The lease agreement for the $4.6 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton's implicit interest rate was 9%. (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. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2021. 2. Prepare an amortization schedule for the four-year term of the lease. 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2021 and 2023. X Answer is complete but not entirely correct.

American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. The lease agreement for the $4.6 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton's implicit interest rate was 9%. (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. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2021. 2. Prepare an amortization schedule for the four-year term of the lease. 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2021 and 2023. X Answer is complete but not entirely correct.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. The machine was constructed and ready for use on January 1, 2021. The lease agreement covered a $4.6 million machine with four equal end-of-year payments, and a useful life anticipated to be four years with no residual value. The implicit interest rate by Barton and Barton was determined to be 9%. **Key Requirements:** 1. Record the journal entry for American Food Services at the lease's commencement on January 1, 2021. 2. Develop an amortization schedule for the lease period of four years. 3. & 4. Create the necessary lease entries dated December 31, 2021, and December 31, 2023. **Amortization Schedule Overview:** The lease amortization table breaks down payments over the lease's four-year span, detailing lease payments, effective interest, decrease in balance, and outstanding balance. | Year | Lease Payments | Effective Interest | Decrease in Balance | Outstanding Balance | |------|----------------|---------------------|---------------------|---------------------| | 2021 | 1,265,541 | 414,000 | 851,541 | 4,600,000 | | 2022 | 1,265,541 | 337,361 | 928,180 | 3,748,459 | | 2023 | 1,265,541 | 253,825 | 1,011,716 | 2,820,278 | | 2024 | 1,265,541 | (543,021) | 1,808,562 | 1,808,562 | | **Total** | **5,062,164** | **462,165** | **4,599,999** | **0** | Note: All amounts are rounded to the nearest whole dollar and entered as positive values. Some data fields in the table indicated incorrect or incomplete input, marked by red crosses, suggesting errors in calculation or entry that need revision.
Transcribed Image Text:American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. The machine was constructed and ready for use on January 1, 2021. The lease agreement covered a $4.6 million machine with four equal end-of-year payments, and a useful life anticipated to be four years with no residual value. The implicit interest rate by Barton and Barton was determined to be 9%. **Key Requirements:** 1. Record the journal entry for American Food Services at the lease's commencement on January 1, 2021. 2. Develop an amortization schedule for the lease period of four years. 3. & 4. Create the necessary lease entries dated December 31, 2021, and December 31, 2023. **Amortization Schedule Overview:** The lease amortization table breaks down payments over the lease's four-year span, detailing lease payments, effective interest, decrease in balance, and outstanding balance. | Year | Lease Payments | Effective Interest | Decrease in Balance | Outstanding Balance | |------|----------------|---------------------|---------------------|---------------------| | 2021 | 1,265,541 | 414,000 | 851,541 | 4,600,000 | | 2022 | 1,265,541 | 337,361 | 928,180 | 3,748,459 | | 2023 | 1,265,541 | 253,825 | 1,011,716 | 2,820,278 | | 2024 | 1,265,541 | (543,021) | 1,808,562 | 1,808,562 | | **Total** | **5,062,164** | **462,165** | **4,599,999** | **0** | Note: All amounts are rounded to the nearest whole dollar and entered as positive values. Some data fields in the table indicated incorrect or incomplete input, marked by red crosses, suggesting errors in calculation or entry that need revision.
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