Question

Exercise 15-2 (Algo) Finance lease; calculate lease payments (L015-2] 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 $5.8 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 8%. (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 Reg 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 an: dollars and not in millions. If no entry is required for a transaction/event, select "No journal entry required" in the first View transaction list Journal entry worksheet < 1 > Record the beginning of the lease for American Food Services. Note: Enter debits before credits.

Answer 1

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Jan-1 1 1 Journal Enly bate Particulars Debit cxdit 2021 Right to use asset $5,800,000 Lease payable $5.80000 feing second the lease] Requirement: Fair value of the machine 1 $5,800,000 py of ordinary Annuity CR2, 4 years) fr+(14275 3.31813 Annual Rental payments [5.800.000/3.31213] ($1:151,139 Lease Amortization schedule. Years Lease paymet Effective Decrease in outstanding Interest@sil balance Balance $5.800.000 $1751,139 $464,000 $1,287139 $4512,861 2 $1,751139 $361,029 $1,390.110 $ 3,122,751 3 $ 1,751.139 $249,8201 $1,501,319 $1,6214,32 4. | $1,751,139 | $129.715 $1,621432 $ - $7,004,556 $1,204564 $5,800,000 384) Journal Entries bate particulars Debile credit 2021 Interest Expense $464,000 Lease payable $1,287139 cash $1,751,139 Being Lease interest payment] Amortization expence 5800000ki] $1,450,000 Right of use Asset $1,450,000 Being Amostization of sight of use asset] 2025 Interest expense $129,715 Lease payable $1621432 cash $ 1751,139 Being Interest expeuses a Lease paypal Amortisation expence $1,450,000 Right of use Asset $1,450,000 Being Amosti Zation of right of use Dec 31 Dec 31 assell