On October 1, 2017, Vaughn, Inc., leased a machine from Fell Leasing Company for five years....

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On October 1, 2017, Vaughn, Inc., leased a machine from FellLeasing Company for five years. The lease requires five annualpayments of $10,000 beginning September 30, 2018. Vaughn’sincremental borrowing rate is 11%, and it uses a calendar year forreporting purposes. The machine has a 12-year economic life withzero salvage value. Vaughn correctly classifies the lease as anoperating lease under ASU 2016-02. Using (PV of 1, PVAD of 1, andPVOA of 1) (Use the appropriate factor(s) from the tablesprovided.) Required: At what amount should Vaughn record the leasedequipment on October 1, 2017? (Round your answer to the nearestwhole dollar.) What is the amount of rent expense that Vaughnshould record for the year ended December 31, 2017, and for theyear ended December 31, 2018? How much of the lease liabilityshould be classified as current on December 31, 2017, and December31, 2018? (Round your intermediate calculations and final answersto 2 decimal places.)

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3.8 Ratings (589 Votes)

Year	Annual lease rent ($)	PV factors @11%	Present value of lease rent ($)
0	100,000.00	1.00	100,000.00
1.00	100,000.00	0.90	90,090.09
2.00	100,000.00	0.81	81,162.24
3.00	100,000.00	0.73	73,119.14
4.00	100,000.00	0.66	65,873.10
			410,244.57
Less: Payment at the beginning of lease			100,000.00
Leased asset should be recorded at this value by Vaughn			310,244.57

Particulars	Amount ($)
Rent expense for the period December 31, 2017 (100000 x 3/12)	25,000.00

For the year end December 31, 2018	100,000.00

Particulars	Amount ($)
Current liability as on:
31/12/2017	310,244.57

31/12/2018	310,244.57
Less: Lease payment for 2018 (100000 x .9009009)	90,090.09
	220,154.48

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Transcribed Image Text

On October 1, 2017, Vaughn, Inc., leased a machine from FellLeasing Company for five years. The lease requires five annualpayments of $10,000 beginning September 30, 2018. Vaughn’sincremental borrowing rate is 11%, and it uses a calendar year forreporting purposes. The machine has a 12-year economic life withzero salvage value. Vaughn correctly classifies the lease as anoperating lease under ASU 2016-02. Using (PV of 1, PVAD of 1, andPVOA of 1) (Use the appropriate factor(s) from the tablesprovided.) Required: At what amount should Vaughn record the leasedequipment on October 1, 2017? (Round your answer to the nearestwhole dollar.) What is the amount of rent expense that Vaughnshould record for the year ended December 31, 2017, and for theyear ended December 31, 2018? How much of the lease liabilityshould be classified as current on December 31, 2017, and December31, 2018? (Round your intermediate calculations and final answersto 2 decimal places.)