Teal Mountain Company leases an automobile with a fair value of $20,014 from John Simon Motors, Inc., on the following terms:1. Non-cancelable term of 50 months.2. Rental of $410 per month (at the beginning of each month). (The present value at 0.5% per month is $18,190.)3. Teal Mountain guarantees a residual value of $1,840 (the present value at 0.5% per month is $1,434). Teal Mountain expects the probable residual value to be $1,840 at the end of the lease term.4. Estimated economic life of the automobile is 60 months.5. Teal Mountain’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown.CAN I GET SOME HELP WITH THIS PART PLEASE? THANKS IN ADVANCE!! Based on the original fact pattern, record the lease on Teal Mountain’s books at the date of commencement. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)Account Titles and ExplanationDebitCreditRIGHT-OF-USE ASSET?0LEASE LIABILITY0?

Lease is an contract between two parties, in which one party provides it's asset for use to another party and another party pays lease rental in return of same. Here, Present value of lease rentals = $18190 Right to use asset should be recorded at present value of lease rentals. So, based on the original fact pattern, recording the lease on Teal Mountain’s books at the date of commencement is: Date Account Particulars Debit ($) Credit ($) Right of use asset 18190 Lease Liability (To record right of use asset) 18190

Answered: Teal Mountain Company leases an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Teal Mountain Company leases an automobile with a fair value of $20,014 from John Simon Motors, Inc., on the following terms:

1.		Non-cancelable term of 50 months.
2.		Rental of $410 per month (at the beginning of each month). (The present value at 0.5% per month is $18,190.)
3.		Teal Mountain guarantees a residual value of $1,840 (the present value at 0.5% per month is $1,434). Teal Mountain expects the probable residual value to be $1,840 at the end of the lease term.
4.		Estimated economic life of the automobile is 60 months.
5.		Teal Mountain’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown.

CAN I GET SOME HELP WITH THIS PART PLEASE? THANKS IN ADVANCE!!

Based on the original fact pattern, record the lease on Teal Mountain’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
RIGHT-OF-USE ASSET	?	0
LEASE LIABILITY	0	?

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