Exercise 21A-3 a-g Sage Hill Company leases an automobile with a fair value of $

Question

Exercise 21A-3 a-g Sage Hill Company leases an automobile with a fair value of $12,257 from John Simon Motors, Inc., on the following terms 1. Non-cancelable term of 50 months. 2. Rental of $250 per month (at the beginning of each month). (The present value at 0.5% per month is $11,091.) 3. Sage Hill guarantees a residual value of $1,190 (the present value at 0.5% per month is S927), Delaney expects the probable residual value to be $1,190 at the end of the lease 4. Estimated economic life of the automobile is 60 months. 5. Sage Hill's incremental borrowing rate is 6% a year (0.5% a month), Simon's implicit rate is unknown. Click here to view t (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the nature of this lease to Sage Hill? The nature of this lease is a/an lease. SHOW LIST What is the present value of the lease payments to determine the lease liability(Round answer to O decimal places, e.g. 5,275.) Present value of the lease

Explanation / Answer

1)FInance lease

2)Present value of lease payment:11091+927=$ 12018

3)

Depreciation :[12018-1190]/60=180.47

5)Present value of salvage:..74137*500 = $ 371

present value of lease payment =11091+371 = 11462

**PVF@.50%,60 = .74137

Date Account debit credit 1 Lease equipment 12018 lease liability 12018 [Being automobile taken on lease] 2 lease liability [250-60 ] 190 Interest expense [12018*.005] 60. cash 250 [first lease payment made] 3 lease liability   [250-59] 191 Interest expense [12018-190]*.005 59 cash 250 [second lease payment made] 4 Depreciation expense -equipment 180.47 Accumulated depreciation 180.47

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