Delaney Company leases an automobile with a fair value of $10,000 from Simon Motors, Inc., on the following terms. 1. Non-cancelable term of 50 months. 2. Rental of $200 per month at the beginning of each month. (The present value at 0.5% per month is $8,873.) 3. Estimated economic life of the automobile is 60 months. 4. Delaney's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown. Instructions a. What is the present value of the lease payments to determine the lease liability? b. Record the lease on Delaney's books at the commencement date. c. Record the first month's lease payment (at commencement of the lease). d. Record the second month's lease payment. e. Record the first month's depreciation on Delaney's books (assume straight-line).
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
Delaney Company leases an automobile with a fair value of $10,000 from Simon Motors, Inc., on the following terms.
- 1. Non-cancelable term of 50 months.
- 2. Rental of $200 per month at the beginning of each month. (The present value at 0.5% per month is $8,873.)
- 3. Estimated economic life of the automobile is 60 months.
- 4. Delaney's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.
Instructions
a. What is the present value of the lease payments to determine the lease liability?
b. Record the lease on Delaney's books at the commencement date.
c. Record the first month's lease payment (at commencement of the lease).
d. Record the second month's lease payment.
e. Record the first month's
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
