Trident Architects, LP leases an automobile with a fair value of $32,000 from Hub City Motors, Inc., on the following terms. 1. Non-cancelable term of 48 months. 2. Rental of $600 per month (at the beginning of each month). (The present value at 0.5% per month is $25,676.) 3. Trident guarantees a residual value of $7,000 (the present value at 0.5% per month is $5,510). They expect the probable residual value at the end of the lease term to be $8,035. (new information!) 4. Estimated economic life of the automobile is 60 months. 5. Tridents incremental borrowing rate is 6% a year (0.5% a month). Hub Citys implicit rate (which only they know) is conveniently also 6% for this problem (0.5% a month). 6. The automobile cost Hub City Motors, Inc. $20,000 to produce

(a) What is the nature of this lease to Hub City Motors? Why?

(b) How was the $600 payment determined?

(c) What is the lease receivable?

(d) Based on the original fact pattern, record the lease on Hub Citys books at the date of commencement.