Brecker Company leases an automobile with a fair value of $19,460 from Emporia M

Question

Brecker Company leases an automobile with a fair value of $19,460 from Emporia Motors, Inc., on the following terms.

1. Noncancelable term of 60 months.

2. Rental of $390 per month (at end of each month). (The present value at 1% per month is $17,532.)

3. Estimated residual value after 60 months is $1,080. (The present value at 1% per month is $594.) Brecker Company guarantees the residual value of $1,080.

4. Estimated economic life of the automobile is 67 months.

5. Brecker Company

Explanation / Answer

THi sis a Capital Lease as Term is > 75% of assets Life & It is not cancelable PV of paylemts > 90% . Dep = (Cost-Salvage)/Life = (19460-1080)/5 = $3,676 pa or 3676/12 = 306 pm Oprening entry will be: mmddyy Automobile Dr 19460 Capital Lease Obligation Cr 19640 1st Month entry :- 01mmyy Lease Liability Dr 390 Cash Cr 390

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