I need help solving for the new PV of lease payments. The other portions should

Question

I need help solving for the new PV of lease payments. The other portions should all be correct.

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 $927). Delaney expects the probable residual value to be $1,190 at the end of the lease term. Estimated economic life of the automobile is 60 months. Sage Hill's incremental borrowing rate is 6% a year (0.5% a month), Simon's implicit rate is unknown. 4. 5. Click here to view the factor table (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Your answer is correct. What is the nature of this lease to Sage Hill? The nature of this lease is a/an lease.

Explanation / Answer

PV of Minimum Lease payment = Pv of monthly lease payment+Pv of GRV

   11091+927=12018

Calaculation Of Finance Charge

Month Lease liability Installment Interest

M0 12018

   250    250 0

   11768

M1 191.16(250-58.84) 250 M1 58.84 (11768*0.5%)

   11576.84

M2 192.12 250 M2 57.88(11576.84*0.5%)

   11384.72

First Month lease payment

lease laibilty A/c Dr 250

  To Cash 250

Second Month Lease Payment

LeaseLiability Dr. 191.16

Finance Charge Dr. 58.84

   to cash 250

Amortization Expenses of first month

PV of MLP   = 12018    = 200.3

60 60

Amortisation Expense A/c Dr. 200.3

  To Right of Use Asset 200.3

Last Part

Since expecation Changed not the guaranteed amount hence the answer will be same as above b i.e.

PV of lease Payment =11091

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