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Sage Company leases an automobile with a fair value of $13,076 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50
Sage Company leases an automobile with a fair value of $13,076 from John Simon Motors, Inc., on the following terms:
1. | Noncancelable term of 50 months. | |
2. | Rental of $300 per month (at end of each month). (The present value at 1% per month is $11,759.) | |
3. | Estimated residual value after 50 months is $1,090. (The present value at 1% per month is $663.) Sage Company guarantees the residual value of $1,090. | |
4. | Estimated economic life of the automobile is 60 months. | |
5. | Sage 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?
(c) Record the lease on Sage Companys books at the date of inception.
(d) Record the first months depreciation on Sage Companys books (assume straight-line).
(e) Record the first months lease payment.
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