Reference no: EM132620050
Skysong Company leases an automobile with a fair value of $13,568 from John Simon Motors, Inc., on the following terms:
1. Non-cancelable term of 50 months.
2. Rental of $270 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.)
3. Skysong guarantees a residual value of $1,700 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,700 at the end of the lease term.
4. Estimated economic life of the automobile is 60 months.5.Skysong's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.
Question 1: What is the nature of this lease to Skysong?
A. The nature of this lease is a/an _________ lease.
Question 2: What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.)
Present value of the lease payments $___________
B. Based on the original fact pattern, record the lease on Skysong's books at the date of commencement. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
C.Record the first month's lease payment (at commencement of the lease). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
D. Record the second month's lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
E. Record the first month's amortization on Skysong's books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.25.)
F. Suppose that instead of $1,700, Skysong expects the residual value to be only $500 (the guaranteed amount is still $1,700). How does the calculation of the present value of the lease payments change from part (b)? (Round answer to 0 decimal places, e.g. 5,275.)
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