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. Again, I've recognized this is a finance lease... but I need help with the next step.... 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 $
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. Again, I've recognized this is a finance lease... but I need help with the next step.... 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 $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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. |
Again, I've recognized this is a finance lease... but I need help with the next step....
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 |
$
|
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