On 31st December 2000 a company leases a machine with an expected useful life of four years on conditions which transfer substantially all the risks and rewards of ownership to the company. The cost of machine is $ 50,000 and the lease is for four years. A rental of $ 4,291 is payable at the end of each quarter, so that the total lease payments will be $ 68,656 ($ 4,291 x 16).
The company depreciates plant of this kind over a period of four years by the straight-line method. Finance charges are to be apportioned over four years as follows:
For 2001 $ 7,435
For 2002 5,783
For 2003 3,850
For 2004 1,588
Interest rate implicit in the lase is 16%.

Required: Indicate in the way in which the machine and the lease liability will appear in the company’s balance sheet in the years 2001 to 2004

Answer rating: 100% (QA)

Since the risk and rewards of the machine will be transferred to the lessee at the end of the lease ... View the full answer