Rumsfeld Corporation Leased a Machine on December 31, 2018, for a Three-Year

question 207

Essay

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 $16,000 on December 31 of each year beginning on December 31, 2018. Rumsfeld has the option to purchase the machine on December 31, 2021, for $20,000 when its fair value is expected to be $40,000. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 12%.
$$\begin{array} { l r r r } \text { n, i } & \text { PV of \$1 } & \text { PV, ordinary annuity } & \text { PV, annuity due } \\\text { 1 period, 12\% } & 0.89286 & 0.89286 & 1.00000 \\\text { 2 periods, 12\% } & 0.79719 & 1.69005 & 1.89286 \\\text { 3 periods, 12\% } & 0.71178 & 2.40183 & 2.69005\end{array}$$
-Required: Round your answers to the nearest whole dollar amounts.
1. Calculate the amount to be recorded as a right-of-use asset and the associated lease liability.
2. Prepare an amortization schedule for this lease.

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