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Pronghorn Company leases an automobile with a fair value of $16,971 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50

Pronghorn Company leases an automobile with a fair value of $16,971 from John Simon Motors, Inc., on the following terms:

1. Noncancelable term of 50 months.
2. Rental of $410 per month (at end of each month). (The present value at 1% per month is $16,071.)
3. Estimated residual value after 50 months is $1,200. (The present value at 1% per month is $730.) Pronghorn Company guarantees the residual value of $1,200.
4. Estimated economic life of the automobile is 60 months.
5. Pronghorn Companys incremental borrowing rate is 12% a year (1% a month). Simons implicit rate is unknown.

What is the present value of the minimum lease payments? ______________

Record the lease on Pronghorn Companys books at the date of inception.

Leased Equipment _________

Lease Liability _________

Record the first months depreciation on Pronghorn Companys books (assume straight-line).

Depreciation Expense _______

Accum Depr __________

Record the first months lease payment.

Lease Liability

Interest Expense

Cash

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