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  3. on january 1, 20x1, beard company purchased a mach

On January 1, 20X1, Beard Company purchased a machine for $620,000. The machine is expected...

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Accounting

On January 1, 20X1, Beard Company purchased a machine for $620,000. The machine is expected to have a 10-year life, with no salvage value, and will be depreciated by the straight-line method. On January 1, 20X1, it leased the machine to Child Company for a three-year period at an annual rental of $128,000 to be paid at the end of each year. Beard could have sold the machine for $817,298 instead of leasing it. Child does not know the implicit rate in the lease, but it has an incremental rate of 9%. Child Company has a December 31 reporting year. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided. Round your intermediate calculations and final answers to the nearest whole dollar amount.)

Required:

  1. Why is this an operating lease for Child Company?
  2. What are the amounts of the right-of-use asset and lease liability that Child Company should report on its balance sheet at December 31, 20X1?
  3. How much lease expense should Child Company recognize in 20X1?

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