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E21-2(Lessee Computations and Entries; Capital Lease with Guaranteed
Residual Value) Pat Delaney Company leases an automobile with a fair
value of $8,725 from John Simon Motors, Inc., on the following terms:
1. Noncancelable term of 50 months.
2. Rental of $200 per month (at end of each month). (The present value
at 1% per month is $7,840.)3. Estimated residual value after 50 months
is $1,180. (The present value at 1% per month is $715.) Delaney
Company guarantees the residual value of $1,180.4. Estimated economic
life of the automobile is 60 months.5. Delaney Company’s incremental
borrowing rate is 12% a year (1% a month). Simon’s implicit rate is
unknown. Instructions
(a) What is the nature of this lease to Delaney Company?
(b) What is the present value of the minimum lease payments?
(c) Record the lease on Delaney Company’s books at the date of
inception.
(d) Record the first month’s depreciation on Delaney Company’s books
(assume straight-line).
(e) Record the first month’s lease payment.
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ACC 537 Week 5 Assignment Securities (630 Words)
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