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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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