Question

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 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 10%. (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. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 and 4 Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2021. (Enter your answers in whole dollars and not in millions. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the beginning of the lease for American Food Services.

Answer 1

American Food Services, Inc. Requirement 1 Requirement 2 Journal Enteries Date Particulars 1.1.2021 Leased asset a/c To Lease payable Dr. Debit in $ Credit in $ 4000000 4000000 Computation of MLP: Table 4, 4 payments @ 10% = 3.16987 $4,000,000 + 3.16987 = $1,261,881 Interest @ Date Payment 10% Principal Balance 1.1.2021 4000000 31.12.2021 1261881 400000 861881 3138119 31.12.2022 1261881 313812 948069 2190050 31.12.2023 1261881 219005 1042876 1147174 31.12.2024 1261881 114707 1147174 Requirement 3 Journal Enteries Date Particulars 31.12.2021 Interest expense a/c Lease payable a/c To Cash 0 Dr. Dr. Debit in $ Credit in $ 400000 861881 1261881 Requirement 3 Journal Enteries Date Particulars 31.12.2023 Interest expense a/c Lease payable a/c To Cash Dr. Debit in $ Credit in $ 219005 1042876 1261881 Dr.