Exercise 21B-2 (Part Level Submission) Sarasota Company leases an automobile wit

Question

Exercise 21B-2 (Part Level Submission) Sarasota Company leases an automobile with a fair value of$16,008 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50 months. 2. Rental of $370 per month (at end of each month). (The present value at 1% per month is $14,503.) 3. Estimated residual value after 50 months is $1,160. (The present value at 1% per month is $705.) Sarasota Company guarantees the residual value of $1,160. 4. Estimated economic life of the automobile is 60 months. 5. Sarasota Company's incremental borrowing rate is 12% a year (1% a month). Simon's implicit rate is unknown. (b) What is the present value of the minimum lease payments? The present value of the minimum lease payments $

Explanation / Answer

(b)

Present value for Rental income $14,503 Add: Present value of estimated residual value $705 Present value of minimum lease payments $15,208

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