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, 2018. 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%.

Required:
2. Prepare an amortization schedule for the four-year term of the lease.

Complete this question by entering your answers in the tabs below.

Req 2

Prepare an amortization schedule for the four-year term of the lease. (Enter your answers in whole dollars and not in millions. Round your answers to nearest whole dollar. Enter all amounts as positive values.)

	Lease Amortization Schedule Year Lease Payments Effective Interest Decrease in Balance Outstanding Balance 4,600,000 2018 2019 2020 2021 Total 0 0 0

Answer 1

Answer:

Lease Amortization Schedule
Year	Lease Payments	Effective Interest	Decrease in Balance	Outstanding Balance
				$4,600,000
2018	$1,419,875	$414,000	$1,005,875	$3,594,125
2019	$1,419,876	$323,471	$1,096,405	$2,497,720
2020	$1,419,876	$224,795	$1,195,081	$1,302,639
2021	$1,419,876	$117,238	$1,302,639*	$0
Total	$5,679,503	$1,079,504	$4,600,000

*rounded to $1

Lease payments = $4,600,000 ÷ 3.23972 = $1,419,785

Effective interest = Preceding Outstanding balance x 9%

Decrease in balance = Lease payments - Effective interest

Outstanding balance = Preceding outstanding balance - Decrease in balance