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 $36,000 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 $45,000 when its fair value was expected to be $60,000, 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 12%. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease llability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.
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 $36,000 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 $45,000 when its fair value was expected to be $60,000, 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 12%. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease llability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Ee 391.
Transcribed Image Text: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 $36,000 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 $45,000 when its fair value was expected to
be $60,000, 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 12%.
Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1)
Required:
1. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease.
2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term.
3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.
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