Kingbird Company leases an automobile with a fair value of $15,671 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $320 per month (at the beginning of each month). 3. Kingbird guarantees a residual value of $1,500. Delaney expects the probable residual value to be $1,500 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Kingbird’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. (b)What is the present value of the lease payments to determine the lease liability? 14,196 1)Record the first month’s amortization on Kingbird’s books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.25.) 2)Suppose that instead of $1,500, Kingbird expects the residual value to be only $500 (the guaranteed amount is still $1,500). How does the calculation of the present value of the lease payments change from part (b)? (Round answer to 0 decimal places, e.g. 5,275.)
Kingbird Company leases an automobile with a fair value of $15,671 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $320 per month (at the beginning of each month). 3. Kingbird guarantees a residual value of $1,500. Delaney expects the probable residual value to be $1,500 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Kingbird’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. (b)What is the present value of the lease payments to determine the lease liability? 14,196 1)Record the first month’s amortization on Kingbird’s books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.25.) 2)Suppose that instead of $1,500, Kingbird expects the residual value to be only $500 (the guaranteed amount is still $1,500). How does the calculation of the present value of the lease payments change from part (b)? (Round answer to 0 decimal places, e.g. 5,275.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Kingbird Company leases an automobile with a fair value of $15,671 from John Simon Motors, Inc., on the following terms:
| 1. | Non-cancelable term of 50 months. | |
| 2. | Rental of $320 per month (at the beginning of each month). | |
| 3. | Kingbird guarantees a residual value of $1,500. Delaney expects the probable residual value to be $1,500 at the end of the lease term. | |
| 4. | Estimated economic life of the automobile is 60 months. | |
| 5. | Kingbird’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. |
(b)What is the present value of the lease payments to determine the lease liability? 14,196
1)Record the first month’s amortization on Kingbird’s books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.25.)
2)Suppose that instead of $1,500, Kingbird expects the residual value to be only $500 (the guaranteed amount is still $1,500). How does the calculation of the present value of the lease payments change from part (b)? (Round answer to 0 decimal places, e.g. 5,275.)
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