Exercise 21-03 Shamrock Company leases an automobile with a fair value of $18,013 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $370 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.) 3. Shamrock guarantees a residual value of $1,600 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,600 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Shamrocks incremental borrowing rate is 6% a year (0.5% a month). Simons implicit rate is unknown.

What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.) X Present value of the lease payments SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT x Your answer is incorrect. Try again. Based on the original fact pattern, record the lease on Shamrock's books at the date of commencement. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit Account Titles and Explanation X X x 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.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT x Your answer is incorrect. Try again. 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.) Debit Credit Account Titles and Explanation x X x Record the first month's amortization on Shamrock'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.) Debit Credit Account Titles and Explanation x x SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT X Your answer is incorrect. Try again. Suppose that instead of $1,600, Shamrock expects the residual value to be only $500 (the guaranteed amount is still $1,600). 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.) PV of lease payments