United Health Group leased a life support machine on January 1, 2018, for a three-year period ending
Question:
United Health Group leased a life support machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $144,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2019. The company had the option to purchase the machine on December 30, 2020, for $180,000 when its fair value was expected to be $240,000, a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. United Health was aware that the lessor's implicit rate of return was 12%.
Required:
Calculate the amount United Health should record as a right-of-use asset and lease liability for this finance lease.
Prepare the appropriate journal entries for United Health from the beginning of the lease through the second payment (12/31/18).
Advanced Accounting
ISBN: 978-1259444951
13th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupni