Lancia Company leases an automobile with a fair value of $13,627 from Vauxhall Motors, Inc., on the
Question:
Lancia Company leases an automobile with a fair value of $13,627 from Vauxhall Motors, Inc., on the following terms:
1). Noncancelable term of 50 months.
2). Rental of $320 per month (at end of each month). (The present value at 1% per month is $12,543.)
3). Estimated residual value after 50 months is $1,110. (The present value at 1% per month is $675.) Lancia Company guarantees the residual value of $1,110.
4). Estimated economic life of the automobile is 60 months.
5). Lancia Company’s incremental borrowing rate is 12% a year (1% a month). Vauxhall’s implicit rate is unknown.
a. What is the present value of the minimum lease payments?
b. Journalize the lease on Lancia Company’s books at the date of inception.
c. Journalize the first month’s depreciation on Lancia Company’s books (assume straight-line).
d. Journalize the first month’s lease payment.
Intermediate Accounting
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield