Preparing an amortization schedule for lease


Lessee; amortization schedule and journal entries; Type A lease

Response to the following problem:

American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2016. 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 is 10%.

Required:

1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2016.

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

3. Prepare the appropriate journal entries on December 31, 2016.

4. Prepare the appropriate journal entries on December 31, 2018.

 

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Financial Accounting: Preparing an amortization schedule for lease
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