American Food Services, Inc., leased a packaging machine fromBarton and Barton Corporation. Barton and Barton completedconstruction of the machine on January 1, 2018. The lease agreementfor the $4.5 million (fair value and present value of the leasepayments) machine specified four equal payments at the end of eachyear. The useful life of the machine was expected to be four yearswith no residual value. Barton and Barton’s implicit interest ratewas 8%.
1. Prepare the journal entry for American FoodServices at the beginning of the lease on January 1, 2018.
2. Prepare an amortization schedule for thefour-year term of the lease.
3. & 4. Prepare the appropriate entriesrelated to the lease on December 31, 2018 and 2020.
