Tamarisk Company leases an automobile with a fair value of $14,092 from John Simon Motors, Inc., on the following terms:

1. Non-cancelable term of 50 months.

2. Rental of $290 per month (at the beginning of each month).

3. Tamarisk guarantees a residual value of $1,220. Delaney expects the probably residual value to be $1,220 at the end of the lease term.

4. Estimated economic life of the automobile is 60 months.

5. Tamarisk's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.

Part A)

What is the present value of the lease payments to determine the lease liability?

Part B)

Based on the original fact pattern, record the lease on Tamarisk's books at the date of commencement.

Part C)

Record the second month's lease payment.

Part D)

Record the first month's amortization on Tamarisk's books (assume straight-line).

Part E)

Suppose that instead of $1,220, Tamarisk expects the residual value to be only $500 (the guaranteed amount is still $1,220). How does the calculation of the present value of the lease payments change from part (a)?