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18000 4.1698700000000004 75057.66 4000 0.621 2484 75057.66 2484 77541.66 For Luv company, it is a capital lease. The following tests are met: It has a bargain-purchase option. Economic test (75%): The lease term (5 years) is greater than 75% than the economic life of the leased equipment (5 years). The economic test in this case is 100%. Recovery test (90%): The present value of the lease payments (present value annuity factor for n=5 years, i=10% is 4.16987. You can use present value annuity tables to find this factor): $18,000 (annual lease payment) x 4.16987 (present value annuity factor) = 75,058, which is 107% of the fair value ($75,058 / $70,000 = 107%) For Soap Company, because there is a bargain-purchase option and payments are guaranteed without much uncertainty of payment, it is also an operating lease. However, because the fair value of the lease is $70,000, and the present value of the lease payments is $75,000—which is greater than the fair value of $70,000—it is a sales-leaseback lease. Prepare the amortization schedule for Luv Company for the 5-year term: Lease payments PV of annuity due i=10%, n=5 years Present value of lease payments Bargain option PV of i=10% , n =5 years Present value of the bargain option Present value of bargain option Total lease liability Sum-of-years method Double-declining method Units of production ABC depreciation: The journal entry to record the sale would be the following: Accumulated depreciation Dr Cash Dr Loss on sale of machine Dr If the machine was sold for $10,000, what will the entry be? ABC trade-in journal entry: Cash Cr Old machine Cr Gain on exchange Cr Straight-line depreciation: Year 1 depreciation = $ Year 2 depreciation = Year 3 depreciation = Year 4 depreciation = Year 1 depreciation = Year 3 depreciation = Year 4 depreciation = Year 2 depreciation = New model Dr Gain on sale of machine Cr As you show the depreciation computations, be sure to show your work. (show your…
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work_part_2_0….xlsx