Pronghorn Company leases an automobile with a fair value of $9,828 from John Simon Motors, Inc., on the following terms:

1.		Noncancelable term of 50 months.
2.		Rental of $220 per month (at end of each month). (The present value at 1% per month is $8,624.)
3.		Estimated residual value after 50 months is $1,010. (The present value at 1% per month is $614.) Pronghorn Company guarantees the residual value of $1,010.
4.		Estimated economic life of the automobile is 60 months.
5.		Pronghorn Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown.

What is the present value of the minimum lease payments?

(a) Record the lease on Pronghorn Company’s books at the date of inception. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(b) Record the first month’s depreciation on Pronghorn Company’s books (assume straight-line).(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.)

(c) Record the first month’s lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.)

Answer rating: 100% (QA)

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