Sage Hill Company leases an automobile with a fair value of $12,257 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $250 per month (at the beginning of each month). (The present value at 0.5% per month is $11,091.) 3. Sage Hill guarantees a residual value of $1,190 (the present value at 0.5% per month is $927). Delaney expects the probable residual value to be $1,190 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Sage Hills incremental borrowing rate is 6% a year (0.5% a month). Simons implicit rate is unknown.

1. Record the first months amortization on Sage Hills books (assume straight-line). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.25.)

2. Suppose that instead of $1190, Sage Hill expects the residual value to be only $500 (the guaranteed amount is still $1190). How does the calculation of the present value of the lease payments change from part (b)?