Question

Lancia Company leases an automobile with a fair value of $13,627 from Vauxhall Motors, Inc., on the following terms:

1). Noncancelable term of 50 months.

2). Rental of $320 per month (at end of each month). (The present value at 1% per month is $12,543.)

3). Estimated residual value after 50 months is $1,110. (The present value at 1% per month is $675.) Lancia Company guarantees the residual value of $1,110.

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

5). Lancia Company’s incremental borrowing rate is 12% a year (1% a month). Vauxhall’s implicit rate is unknown.

a. What is the present value of the minimum lease payments?
b. Journalize the lease on Lancia Company’s books at the date of inception.
c. Journalize the first month’s depreciation on Lancia Company’s books (assume straight-line).
d. Journalize the first month’s lease payment.

Answer 1

Solution Given that Lancia cempany leases an automob:le with a fais Volue of 13,62 rem va uxhall Motos en the above teoms , IwC a) what s poesent dease payments? the present value of the minimu present valu of lease Payment Present value ofQua raotess veg: present valuao 2 5u3 the mn leage 9 13218 Event Greneval ousna Leasedl equipment lease Liabt 13a1 8 13318 Acoumulateol oepsedoa Leased eauipment CTO eCo d mo nth

|enterat EXPenge (t3218*1%) i 132-1 Lease Liabity(320-138g 320 2.6 (Td secard the lease Payment) Hn: DepTcalon Experge calculated based on ugefet Life becaage of the ua rantees the regidual valua