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Schrute Company leases an automobile with a fair value of $15,005 from Rainn, Inc., on...

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Accounting

Schrute Company leases an automobile with a fair value of $15,005 from Rainn, Inc., on the following terms:

1. Non-cancelable term of 50 months.

2. Rental of $300 per month (at the beginning of each month).

3. Schrute guarantees a residual value of $1,800 (the present value at 0.5% per month is $1,403). The expected residual value is estimated to be $1,800 at the end of the lease term.

4. Estimated economic life of the automobile is 60 months.

5. Schrutes incremental borrowing rate is 6% a year (0.5% a month). Rainns implicit rate is unknown.

Present Value of an Annuity Due with 0.5% and 60 periods: 51.98419

Present Value of an Ordinary Annuity at 0.5% and 60 periods: 48.17337352

Present Value of an Annuity Due with 0.5% and 50 periods: 44.36350

Present Value of an Ordinary Annuity with 0.5% and 50 Periods:41.56644707

True or False - this a financing lease to Schrute Company:

Question 20 options:

True

False

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