Splish Brothers Company leases an automobile with a fair value of $18,767 from John Simon Motors, Inc., on the following terms:

1.		Non-cancelable term of 50 months.
2.		Rental of $390 per month (at the beginning of each month). (The present value at 0.5% per month is $17,302.)
3.		Splish Brothers guarantees a residual value of $1,410 (the present value at 0.5% per month is $1,099). Delaney expects the probable residual value to be $1,410 at the end of the lease term.
4.		Estimated economic life of the automobile is 60 months.
5.		Splish Brotherss incremental borrowing rate is 6% a year (0.5% a month). Simons implicit rate is unknown.

Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

(a)

Correct answer iconYour answer is correct.

What is the nature of this lease to Splish Brothers?

The nature of this lease is a/an select a nature of the lease operatingfinance lease.

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(b)

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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

$enter the Present value of the lease payments in dollars rounded to 0 decimal places

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