Question

Larkspur Company leases an automobile with a fair value of $13,354 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50 months. 2. Rental of $310 per month (at end of each month). (The present value at 1% per month is $12,151.) 3. Estimated residual value after 50 months is $1,100. (The present value at 1% per month is $669.) Larkspur Company guarantees the residual value of $1,100. 4. Estimated economic life of the automobile is 60 months. 5. Larkspur Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown.

What is the present value of the minimum lease payments? The present value of the minimum lease payments $enter the present value of the minimum lease payments SHOW LIST OF ACCOUNTS LINK TO TEXT

(c) Record the lease on Larkspur Company’s books at the date of inception. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (d) Record the first month’s depreciation on Larkspur Company’s books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (e) Record the first month’s lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount

Answer 1

Answer

Present Value of minimum lease payment:

Present Value of minimum rental payment=$12151

Add Present Value of guaranteed residual value=$669

Present Value of minimum lease payments=$12820

Transaction	General Journal	Debit	Credit
C.	Leased Equipment	$         12,151
	Leased liability		$                    12,151
	(To record the lease)
d.	Depreciation expense(12820-1100)/50	$               234
	Accumulated Depreciation		$                          234
	(To record Depreciation expense)
e.	Lease liability	$               182
	Interest Expense(12820×1%)	$               128
	Cash		$                          310
	(To record lease payment)
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