Splish Brothers Company leases an automobile with a fair value of $13,924 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $280 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.) 3. Splish Brothers guarantees a residual value of $1,580 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,580 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Splish Brothers’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Collapse question part (a) What is the nature of this lease to Splish Brothers? The nature of this lease is a/an select a nature of the lease finance lease. Collapse question part (b) What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.) Present value of the lease payments $enter the Present value of the lease payments in dollars rounded to 0 decimal places Collapse question part (c) Based on the original fact pattern, record the lease on Splish Brothers’s books at the date of commencement. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Leased Buildings 12,422 Lease Liability 12,422 Collapse question part (d) Record the first month’s lease payment (at commencement of the lease). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Lease Liability 280 Cash 280 Collapse question part (e) Record the second month’s lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Lease Liability Interest Expense Cash
Splish Brothers Company leases an automobile with a fair value of $13,924 from John Simon Motors, Inc., on the following terms:
1. Non-cancelable term of 50 months.
2. Rental of $280 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.)
3. Splish Brothers guarantees a residual value of $1,580 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,580 at the end of the lease term.
4. Estimated economic life of the automobile is 60 months.
5. Splish Brothers’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown.
Click here to view factor tables.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Collapse question part
(a)
What is the nature of this lease to Splish Brothers?
The nature of this lease is a/an select a nature of the lease
finance
lease.
Collapse question part
(b)
What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.)
Present value of the lease payments
$enter the Present value of the lease payments in dollars rounded to 0 decimal places
Collapse question part
(c)
Based on the original fact pattern, record the lease on Splish Brothers’s books at the date of commencement. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit
Leased Buildings 12,422
Lease Liability 12,422
Collapse question part
(d)
Record the first month’s lease payment (at commencement of the lease). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
Account Titles and Explanation Debit Credit
Lease Liability 280
Cash 280
Collapse question part
(e)
Record the second month’s lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
Account Titles and Explanation Debit Credit
Lease Liability
Interest Expense
Cash
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