Exercise 21A-3 a-g Skysong Company leases an automobile with a fair value of $18,680 from John Simon Motors, Inc., on the following terms:

1. Non-cancelable term of 50 months.

2. Rental of $380 per month (at the beginning of each month). (The present value at 0.5% per month is $16,859.)

3. Skysong guarantees a residual value of $1,870 (the present value at 0.5% per month is $1,457). Skysong expects the probable residual value to be $1,870 at the end of the lease term.

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

5. Skysongs incremental borrowing rate is 6% a year (0.5% a month). Simons implicit rate is unknown. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What is the nature of this lease to Skysong?

The nature of this lease is a/an lease.

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

Based on the original fact pattern, record the lease on Skysongs books at the date of commencement.

Record the first months lease payment (at commencement of the lease).

Record the second months lease payment.