Larkspur Company leases an automobile with a fair value of $10,844 from John Simon Motors, Inc., on the following terms:

1.Non-cancelable term of 50 months.2.Rental of $220 per month (at the beginning of each month).3.Larkspur guarantees a residual value of $1,120. Delaney expects the probable residual value to be $1,120 at the end of the lease term.

4.Estimated economic life of the automobile is 60 months.5.Larkspur's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.

What is the nature of this lease to Larkspur?

The nature of this lease is a/an _____Lease

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______

Record the first month's lease payment (at commencement of the lease)

Record the second month's lease payment

Record the first month's amortization on Larkspur's books (assume straight-line).

Suppose that instead of $1,120, Larkspur expects the residual value to be only $500 (the guaranteed amount is still $1,120). 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