Question

Exercise 21A-3 а-g Teal Mountain Company leases an automobile with a fair value of $20,014 from John Simon Motors, Inc., on the following terms: Non-cancelable term of 50 months. 1. Rental of $410 per month (at the beginning of each month). (The present value at 0.5% per month is $18,190.) 2. Teal Mountain guarantees a residual value of $1,840 (the present value at 0.5% per month is $1,434). Teal Mountain expects the probable residual value to be $1,840 at the end of the lease term 3 Estimated economic life of the automobile is 60 months. 4. Teal Mountain's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown. 5.

Answer 1

18,190 Present value of lease payments (Residual value will not be taken into account as the company expects the probable residual value to be $1840 as guaranteed to the lesson 2) 18,190 Right-to-use asset Lease liability 18,190 13) Lease liability Interest expense (18190*.5%) Cash 319 91 410 363.80 Amortisation expense (18190/50) Right-to-use asset 363.80 5) 19,234 PV of lease payments (18190 + 1434 1340/1840)