American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton...

4.1 Ratings (736 Votes)

1	Date	Account titles and explanation				Debit	Credit
	2018
	Jan 1.	Leased equipment				4500000
		Lease liability					4500000
		(Lease recorded)

2	Minimum lease payment=Fair value of leased equipment/Present value interest annuity factor at implicit rate over the lease term
	Minimum lease payment=4500000/Present value interest annuity factor at 8% for 4 years=4500000/3.3121=$ 1358655

	Amortization schedule:
	Date	Minimum Lease payment	Interest expense	Reduction in lease liability	Balance in lease liability
		1	2=Prev.bal in lease liability*8%	3=2-1
	Jan 1. 2018				4500000
	Dec 31. 2018	1358655	360000	998655	3501345
	Dec 31. 2019	1358655	280108	1078547	2422798
	Dec 31. 2020	1358655	193824	1164831	1257966
	Dec 31. 2021	1358655	100688	1257967	0

	* Last year interest expense is adjusted due to difference of $51 (Round-off effect)

3	Date	Account titles and explanation				Debit	Credit
	Dec 31. 2018	Interest expense				360000
		Lease liability				998655
		Cash					1358655
		(Lease payment made)

4	Date	Account titles and explanation				Debit	Credit
	Dec 31. 2020	Interest expense				193824
		Lease liability				1164831
		Cash					1358655
		(Lease payment made)

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