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Splish Brothers Company leases an automobile with a fair valueof $13,924 from John Simon Motors, Inc., on the followingterms:

1.		Non-cancelable term of 50 months.
2.		Rental of $280 per month (at the beginning of each month).
3.		Splish Brothers guarantees a residual value of $1,580. Delaneyexpects the probable residual value to be $1,580 at the end of thelease term.
4.		Estimated economic life of the automobile is 60 months.
5.		Splish Brothers’s incremental borrowing rate is 6% a year (0.5%a month). Simon’s implicit rate is unknown.

Click here to view factor tables.
(For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.)

What is the nature of this lease to Splish Brothers?

The nature of this lease is a/anselect a nature of the lease                                                                 financeoperating lease.

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List of Accounts

  

  

What is the present value of the lease payments to determine thelease liability? (Round answer to 0 decimal places,e.g. 5,275.)

Present value of the lease payments

$enter the Present value of the lease payments in dollarsrounded to 0 decimal places

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List of Accounts

  

  

Based on the original fact pattern, record the lease on SplishBrothers’s books at the date of commencement. (Creditaccount titles are automatically indented when amount is entered.Do not indent manually.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

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List of Accounts

  

  

Record the first month’s lease payment (at commencement of thelease). (Credit account titles are automaticallyindented when amount is entered. Do not indent manually. Roundanswers to 0 decimal places, e.g. 5,275.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

  

  

Record the second month’s lease payment. (Creditaccount titles are automatically indented when amount is entered.Do not indent manually. Round answers to 0 decimal places, e.g.5,275.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

  

  

Record the first month’s amortization on Splish Brothers’s books(assume straight-line). (Credit account titles areautomatically indented when amount is entered. Do not indentmanually. Round answers to 2 decimal places, e.g.5,275.25.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

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List of Accounts

  

  

Suppose that instead of $1,580, Splish Brothers expects theresidual value to be only $500 (the guaranteed amount is still$1,580). How does the calculation of the present value of the leasepayments change from part (b)? (Round answer to 0decimal places, e.g. 5,275.)

PV of lease payments

$enter the present value of leasepayments in dollars rounded to 0 decimal places

eTextbook and Media

List of Accounts