1. King Cones leased ice cream-making equipment from Ace Leasing. Ace earns interest under such arrangements at a 6% annual rate. The lease term is seven-months with monthly payments of $17,500 due at the end of each month. King Cones elected the short-term lease option. What is the effect of the lease on King Cones earnings during the seven-month term (ignore taxes)?

2. On January 1, Garcia Supply leased a truck for a five-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $13,000 due on December 31 of each year, calculated by the lessor using a 6% discount rate. Negotiations led to Garcia guaranteeing a $60,400 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $58,800. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What is the amount to be added to the right-of-use asset and lease liability under the residual value guarantee?