Exercise 21A-3 a-g Windsor Company leases an automobile with a fair value of $20
ID: 2606667 • Letter: E
Question
Exercise 21A-3 a-g Windsor Company leases an automobile with a fair value of $20,235 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $420 per month (at the beginning of each month). (The present value at 0.5% per month is $18,633.) 3. Windsor guarantees a residual value of $1,550 (the present value at 0.5% per month is $1,208), Delaney expects the probable residual value to be $1,550 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Windsor's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown. Click here to view the factor table (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the nature of this lease to Windsor? The nature of this lease is a/an | lease. 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 Based on the original fact pattern, record the lease on Windsor'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 CreditExplanation / Answer
It is a Finance Lease.
Entry at the date of commencement of lease term:
20,235
Monthly lease payments are shown below:
3 19,595 (420) 19,175 98 19,273
1st month lease payment:
Dr Lease expense (statement of profit or loss) $420
Cr Bank $420
2nd month lease payment:
Dr Lease expense (statement of profit or loss) $420
Cr Bank $420
3rd month lease payment:
Dr Lease expense (statement of profit or loss) $420
Cr Bank $420
Dr Automobile 20,235 Cr Finance lease obligations20,235
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