Question - Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year period. The lease agreement calls for annual payments in the amount of $16,500 on December 31 of each year beginning on December 31, 2018. Rumsfeld has the option to purchase the machine on December 31, 2021, for $20,500 when its fair value is expected to be $30,500. The machine's estimated useful life is expected to be four years with no residual value. The appropriate interest rate for this lease is 8%.
n/iPV of $1PV, ordinary annuityPV, annuity due1 period, 8% 0.92593 0.92593 1.00000 2 periods, 8% 0.85734 1.78326 1.92593 3 periods, 8% 0.79383 2.57710 2.78326
Required:
1. Calculate the amount to be recorded as a right-of-use asset and the associated lease liability.
2. Prepare the amortization schedule for this lease.