Purchase Solution

# Leased Asset, Liability, and Amortization Schedule

Not what you're looking for?

Federated fabrications leased a tooling machine on January 1, 2011, for a three-year period ending December 31, 2013. The lease agreement specified annual payment of \$36,000 beginning with the first payment at the inception of the lease, and each December 31 through 2012. The company had the option to purchase the machine on December 30, 2013, for \$45,000 when its fair value was expected to be \$60,000. The machine's estimated useful life was six years with no salvage value. Federated depreciates assets by the straight-line method. The company was aware that the lessor's implicit rate of return was 12%, which was less than Federated's incremental borrowing rate.

1. Calculate the amount Federated should record as a leased asset and lease liability for this capital 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 inception of the lease through the end of the lease terms

##### Solution Summary

Leased assets, liability, and amortization schedules are examined. The amount federated should record as a leased asset and lease liability for this capital lease is determined.

##### Solution Preview

Hello,

Please find the solution attached for proper formatting.

1.
PV of \$1, n = 3, and i = 12% = 0.71178
PVannuity Due, n = 3, & i =12% = 2.69005

PV of annual Lease Payments (\$36,000 × 2.69005) \$96,842
Add: PV of the BPO Price (\$45,000 × 0.71178) \$32,030
PV of minimum Lease Payments \$128,872

2.
Lease Amortization Schedule
Payments Effective Interest
(12% of Outstanding ...

Solution provided by:
###### Education
• BA, Ain Shams University, Cairo Egypt
• MBA, California State University, Sacramento
###### Recent Feedback
• "ty i have more need help with"
• "ty i have jmore i need help with"
• "great help"
• "excellent help"
• "Very helpful and easy to understand."

##### Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

##### Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

##### Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

##### Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce