Davidson, Incorporated leased a machine from Barwick Corporation….

Davidson, Incorporated leased a machine from Barwick Corporation. Barwick completed construction of the machine on January 1 of the current year. The lease agreement for the $6,000,000 (fair value and present value of the lease payments) machine specified 4 equal payments at the end of each year. The useful life of the machine was expected to be 4 years with no residual value. Barwick’s implicit interest rate was 9%. Required: Determine the amount of each lease payment using Excel’s PMT function. Prepare the journal entry for Davidson, Incorporated at the beginning of the lease. Prepare an amortization schedule for the 4-year term of the lease. Record the first lease payment on December 31. Record the amortization of right-of-use asset on December 31. Indicate the amounts related to the lease reported on the year-end balance sheets and income statements.
table {mso-displayed-decimal-separator:”.”; mso-displayed-thousand-separator:”,”;} tr {mso-height-source:auto;} col {mso-width-source:auto;} td {padding-top:1px; padding-right:1px; padding-left:1px; mso-ignore:padding; color:black; font-size:11.0pt; font-weight:400; font-style:normal; text-decoration:none; font-family:Calibri, sans-serif; mso-font-charset:0; text-align:general; vertical-align:bottom; border:none; white-space:nowrap; mso-rotate:0;} .xl78 {text-align:left;} .xl80 {text-align:left; vertical-align:middle; white-space:normal;} .xl87 {text-align:right;} .xl91 {border-top:none; border-right:none; border-bottom:none; border-left:.5pt solid #D9D9D9;} .xl94 {text-align:right; border-top:.5pt solid #D9D9D9; border-right:none; border-bottom:none; border-left:.5pt solid #D9D9D9;} .xl95 {text-align:right; border-top:.5pt solid #D9D9D9; border-right:none; border-bottom:none; border-left:none;} .xl101 {font-weight:700;} .xl102 {border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none;} .xl126 {font-weight:700; text-align:center; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#79ADE5; mso-pattern:black none;} .xl132 {border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#FFFFAA; mso-pattern:black none;} .xl133 {font-weight:700; text-align:center; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#79ADE5; mso-pattern:black none;} .xl138 {font-weight:700; text-align:center; border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:none; background:#79ADE5; mso-pattern:black none;} .xl144 {text-align:left; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#FFFFAA; mso-pattern:black none;} .xl151 {border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext;} .xl158 {text-align:left; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#FFFFAA; mso-pattern:black none; padding-left:27px; mso-char-indent-count:3;} .xl160 {text-align:left; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none;} .xl162 {text-align:right; border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:.5pt solid windowtext;} .xl163 {text-align:right; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none;} .xl176 {font-weight:700; text-align:center; vertical-align:top; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#79ADE5; mso-pattern:black none; white-space:normal;} .xl177 {font-weight:700; text-align:center; vertical-align:top; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#79ADE5; mso-pattern:black none; white-space:normal;} .xl192 {border-top:none; border-right:none; border-bottom:none; border-left:.5pt solid windowtext;} .xl227 {font-weight:700; text-align:center; vertical-align:top; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#95B3D7; mso-pattern:black none; white-space:normal;} .xl237 {font-weight:700; text-align:center; vertical-align:top; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#95B3D7; mso-pattern:black none; white-space:normal;} .xl249 {text-align:left; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; padding-left:9px; mso-char-indent-count:1;} .xl257 {font-weight:700; text-align:center; vertical-align:top; border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:.5pt solid windowtext; background:#95B3D7; mso-pattern:black none; white-space:normal;} .xl285 {text-align:right; border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:none;} .xl298 {border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:none;} .xl304 {text-align:left; border-top:none; border-right:none; border-bottom:none; border-left:.5pt solid windowtext;} .xl310 {border-top:none; border-right:.5pt solid windowtext; border-bottom:none; border-left:none;} .xl353 {border-top:1.0pt solid #70AD47; border-right:.5pt solid #B2B2B2; border-bottom:.5pt solid #B2B2B2; border-left:.5pt solid #B2B2B2; background:#D9E1F2; mso-pattern:black none;} .xl356 {border:.5pt solid #B2B2B2; background:#D9E1F2; mso-pattern:black none;} .xl358 {border-top:1.0pt solid #70AD47; border-right:.5pt solid #B2B2B2; border-bottom:.5pt solid #B2B2B2; border-left:1.0pt solid #70AD47; background:#D9E1F2; mso-pattern:black none;} .xl359 {border-top:.5pt solid #B2B2B2; border-right:.5pt solid #B2B2B2; border-bottom:.5pt solid #B2B2B2; border-left:1.0pt solid #70AD47; background:#D9E1F2; mso-pattern:black none;} .xl360 {text-align:right; border:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl361 {text-align:left; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl362 {text-align:right; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:none; background:#FFFFAA; mso-pattern:black none;} .xl363 {text-align:right; border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl364 {border-top:.5pt solid windowtext; border-right:none; border-bottom:.5pt solid windowtext; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl365 {border-top:none; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl367 {text-align:right; border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl368 {text-align:right; background:#FFFFAA; mso-pattern:black none;} .xl370 {border-top:.5pt solid windowtext; border-right:none; border-bottom:none; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl373 {border-top:.5pt solid windowtext; border-right:none; border-bottom:2.0pt double windowtext; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl374 {text-align:right; border-top:.5pt solid windowtext; border-right:none; border-bottom:.5pt solid windowtext; border-left:none; background:#FFFFAA; mso-pattern:black none;} .xl375 {text-align:right; border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:none; background:#FFFFAA; mso-pattern:black none;} .xl377 {border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:2.0pt double windowtext; border-left:none; background:#FFFFAA; mso-pattern:black none;} .xl378 {border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:none; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl380 {text-align:left; border-top:.5pt solid windowtext; border-right:none; border-bottom:.5pt solid windowtext; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none; padding-left:27px; mso-char-indent-count:3;} .xl381 {border-top:.5pt solid windowtext; border-right:.5pt solid windowtext; border-bottom:2.0pt double windowtext; border-left:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;} .xl383 {border:.5pt solid windowtext; background:#FFFFAA; mso-pattern:black none;}
Davidson, Incorporated leased a machine from Barwick Corporation. Barwick completed construction of the machine on January 1, 2023. The lease agreement for the $6,000,000 (fair value and present value of the lease payments) machine specified 4 equal payments at the end of each year. The useful life of the machine was expected to be 4 years with no residual value. Barwick’s implicit interest rate was 9%.
Lease date January 1, 2023
Fair value and present value of lease payments $6,000,000
Lease term 4 years
Useful life of machine 4 years
Residual value $0
Barwick’s implicit interest rate 9%
1. Determine the amount of each lease payment using Excel’s PMT function ($1,528,230)
2. Prepare the journal entry for Davidson, Incorporated at the beginning of the lease on January 1, 2023.
Date General Journal Debit Credit
January 1, 2023 Right-of-use asset 6,000,000
Lease payable 6,000,000
3. Prepare an amortization schedule for the 4-year term of the lease.
Date Lease Payments Effective Interest Decrease in Balance Outstanding Balance
January 1, 2023 $6,000,000
December 31, 2023 $1,528,230
December 31, 2024 1,528,230
December 31, 2025 1,528,230
December 31, 2026 1,528,230
Totals
4. Record the first lease payment on December 31, 2023.
Date General Journal Debit Credit
December 31, 2023
5. Record the amortization of right-of-use asset on December 31, 2023.
Date General Journal Debit Credit
December 31, 2023
0
6. Indicate the amounts related to the lease reported on the year-end balance sheets and income statements.
Balance Sheet Amounts Income Statement Amounts
Date Right-of-Use Asset Lease Liability Interest Expense Amortization Expense
December 31, 2023
December 31, 2024
December 31, 2025
December 31, 2026
Students: The scratchpad area is for you to do any additional work you need to solve this question or can be used to show your work.
Nothing in this area will be graded, but it will be submitted with your assignment.