My first Magazine AC 501 All Assignments | Page 15

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.
Estimated economic life of the automobile is 60 months.
Delaney Company’s incremental borrowing rate is 12% a year (1% a
month). Simon’s implicit rate is unknown.
Instructions:
What is the nature of this lease to Delaney Company?
What is the present value of the minimum lease payments?
Record the lease on Delaney Company’s books at the date of inception.
Record the first month’s depreciation on Delaney Company’s books.
(Assume straight-line.)
Record the first month’s lease payment.
E17-8: (Amortization Schedule and Journal Entries for Lessee) Laura
Leasing Company signs an agreement on January 1, 2008, to lease
equipment to Plote Company. The following information relates to this
agreement.
The term of the Noncancelable lease is 5 years with no renewal option.
The equipment has an estimated economic life of 5 years.
The fair value of the asset at January 1, 2008, is $ 80,000.