Reference no: EM132961818
Question - UML Corporation leased a machine on December 31, 2021, for a three-year period. The lease agreement calls for annual payments in the amount of $250,000 on December 31 of each year beginning on December 31, 2021. UML has the option to purchase the machine on December 31, 2024, for $10,000 when its fair value is expected to be $30,000. Exercise of the option is reasonably certain. The machine's estimated useful life is expected to be four years with no residual value. The appropriate interest rate for this lease is 6%.
1. Calculate the amount to be recorded as a right-of-use asset and the associated lease payable.
Present value of annual lease payments
Plus: Present value of the exercise price
Present value of lease payments
2. Prepare an amortization schedule for this lease.
3. Prepare UML's journal entries for this lease for 2021, 2023 and 2024.
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