Exercise 21-2 (E21-2) (Lessee Computation and Entries, Capital Lease
with Guaranteed Residual Value) Brecker Company lease an automobile with
a fair value of $10,906 from Emporia Motors, Inc, on the following
terms:
1. Noncancelable term of 50 months
2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.)
3. Estimated residual value after 50 months is $ 1,180.(the present
value at 1% per month is $715.) Brecker Company guarantees the residual
value of $ 1,180.
4. Estimated economic life of the automobile is 60 months
5. Brecker Company's incremental borrowing rate is 12% a year (1% a month). Emporia's implicit rate is unknown.
Instructions:
(a.) What is the nature of the lease to Brecker Company?
(b.) What is the present value of the minimum lease payments?
(c.) Record the lease on Brecker Company's books a the date of inception.
(d.) Record the first month's depreciation on Brecker Company's books (assume straight lined)
(e.) Record the first month's lease payment.
Click here for the solution: Brecker Company lease an automobile with a fair value of $10,906 from Emporia Motors, Inc, on the following terms
