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What is the present value of the lease payments

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Reference no: EM132956001

Question - Sage Hill AG leases an automobile with a fair value of €23,171 from Simon Motors, on the following terms.

1. Non-cancelable term of 50 months.

2. Rental of €500 per month (at the beginning of each month). (The present value at 0.5% per month is €22,182.)

3. Sage Hill guarantees a residual value of €1,190 (the present value at 0.5% per month is €538). Sage Hill expects the probable residual value to be €1,190 at the end of the lease term.

4. Estimated economic life of the automobile is 60 months.

5. Sage Hill's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.

What is the present value of the lease payments to determine the lease liability?

a) Present value of the lease payments.

b) Record the lease on Company's book at the date of inception.

c) Record the first month's depreciation on Company's books (Assume straight-line).

d) Record the first month's lease payment.

Reference no: EM132956001

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