American Food Services, Incorporated leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2024. The lease agreement for the $5.4 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 12%. 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: 1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2024. 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, 2024 and 2026.
American Food Services, Incorporated leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2024. The lease agreement for the $5.4 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 12%. 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: 1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2024. 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, 2024 and 2026.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A-3
Transcribed Image Text:American Food Services, Incorporated leased a packaging machine from Barton and Barton Corporation. Barton and Barton
completed construction of the machine on January 1, 2024. The lease agreement for the $5.4 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 12%.
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:
1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2024.
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, 2024 and 2026.
Complete this question by entering your answers in the tabs below.
Req 1
Year
Req 2
Prepare an amortization schedule for the four-year term of the lease.
Note: Enter your answers in whole dollars and not in millions. Round your intermediate and final answers to the nearest whole
dollar.
2024
2025
2026
2027
Total
Lease
Payments
Req 3 and 4
Lease Amortization Schedule
1,777,866
1,777,866
3,555,732
Effective
Interest
648,000
648,000
Decrease in
Balance
0
Outstanding
Balance
5,400,000
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