Compute the amount to be recorded as a leased asset

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Reference no: EM13123281

United Peoples Corporation leased a machine on December 31, 2011, for a three-year period. The lease agreement calls for annual payments in the amount of $16,000 on December 31 of each year beginning on December 31, 2011. United has the option to purchase the machine on December 31, 2014, for $20,000 when its fair value is expected to be $30,000. The machine's estimated useful life is expected to be 5 years with no residual value. United uses straight-line depreciation for this type of machinery. The appropriate interest rate for this lease is 12%.

Required:
1. Calculate the amount to be recorded as a leased asset and the associated lease liability.

2. Prepare United's journal entries for this lease for 2011 and 2012.

Reference no: EM13123281

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