Teal Mountain Company leases an automobile with a fair value of $15,005 from John Simon Motors, Inc., on the following terms:

1.

Non-cancelable term of 50 months.

2.

Rental of $300 per month (at the beginning of each month). (The present value at 0.5% per month is $13,310.)

3.

Teal Mountain guarantees a residual value of $1,800 (the present value at 0.5% per month is $1,403). Delaney expects the probable residual value to be $1,800 at the end of the lease term.

4.

Estimated economic life of the automobile is 60 months.

5. Teal Mountains incremental borrowing rate is 6% a year (0.5% a month). Simons implicit rate is unknown.

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

$

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Based on the original fact pattern, record the lease on Teal Mountains books at the date of commencement. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

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Record the first months lease payment (at commencement of the lease). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)

Account Titles and Explanation	Debit	Credit

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Record the second months lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)

Account Titles and Explanation	Debit	Credit

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

Account Titles and Explanation	Debit	Credit

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Suppose that instead of $1,800, Teal Mountain expects the residual value to be only $500 (the guaranteed amount is still $1,800). How does the calculation of the present value of the lease payments change from part (b)? (Round answer to 0 decimal places, e.g. 5,275.)

PV of lease payments

$