acthwchapter15ans

acthwchapter15ans - E 15-7 Capital lease LO5 American Food...

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E 15-7 Capital lease LO5 American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2006. The lease agreement for the $4 million (fair market value) 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 12% (also American Food Services’ incremental borrowing rate). Required: 1. Prepare the journal entry for American Food Services at the inception of the lease on January 1, 2006. 2. Prepare an amortization schedule for the four-year term of the lease. 3. Prepare the journal entry for the first lease payment on December 31, 2006. 4. Prepare the journal entry for the third lease payment on December 31, 2008. Round PV factor to 5 decimal places if you use the PV tables. Round your answers to the nearest whole dollar amount. Amounts in parentheses do not require a negative sign in front of them. Leave no cells blank. You must enter a "0" for the answer to grade correctly. 1. January 1, 2006 Leased assets 4,000,000 Lease payable 4,000,000 2. $4,000,000 ÷ 3.03735 ** = $ 1,316,937 present value lease payment ** present value of an ordinary annuity Lease Amortization Schedule Rental Payments Effective Interest Decrease in Balance Outstanding Balance 4,000,000 2006
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This homework help was uploaded on 04/10/2008 for the course ACT 124 taught by Professor Venuti during the Fall '07 term at Hofstra University.

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acthwchapter15ans - E 15-7 Capital lease LO5 American Food...

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