Larkspur Company leases an automobile with a fair value of $$20,964$ from John Simon Motors, Inc., on the following terms:

Non$-$cancelable term of $50$ months.

Rental of $$440$ per month $($at the beginning of each month$).($The present value at $0\mathrm{.}5\%$ per month is $$19,520.)$

Larkspur guarantees a residual value of $$1,330($the present value at $0\mathrm{.}5\%$ per month is $$1,036).$ Larkspur expects the

probable residual value to be $$1,330$ at the end of the lease term.

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

Larkspur's incremental borrowing rate is $6\%$ a year $(0\mathrm{.}5\%$ a month$).$ Simon's implicit rate is unknown.

e$)$ Record the second month$$s lease payment.

Account Titles Debit Credit

Lease Liability

Interest Expense

Cash

f$)$ Record the first month$$s amortization on Shamrock$$s books $($assume straight$-$line$)$

Account Titles Debit Credit

Amortization Expense $-$

Right of Use Asset $-$

g$)$ 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$)?$

PV of Monthly Payment over term $($with residual$)$

Lease Liability $$-$