Splish Company leases an automobile with a fair value of $15,755from John Simon Motors,...

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Accounting

Splish Company leases an automobile with a fair value of $15,755from John Simon Motors, Inc., on the following terms:
1. Noncancelable term of 50 months.
2. Rental of $360 per month (at end of each month). (The presentvalue at 1% per month is $14,111.)
3. Estimated residual value after 50 months is $1,150. (Thepresent value at 1% per month is $699.) Splish Company guaranteesthe residual value of $1,150.
4. Estimated economic life of the automobile is 60 months.
5. Splish Company’s incremental borrowing rate is 12% a year (1% amonth). Simon’s implicit rate is unknown.

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Ans 1The nature of the lease to splish company is The lease is finance lease as the lease term of 50 months cover the substantial economic life of asset which 60 months See Answer

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In: AccountingSplish Company leases an automobile with a fair value of $15,755from John Simon Motors, Inc.,...Splish Company leases an automobile with a fair value of $15,755from John Simon Motors, Inc., on the following terms:1.Noncancelable term of 50 months.2.Rental of $360 per month (at end of each month). (The presentvalue at 1% per month is $14,111.)3.Estimated residual value after 50 months is $1,150. (Thepresent value at 1% per month is $699.) Splish Company guaranteesthe residual value of $1,150.4.Estimated economic life of the automobile is 60 months.5.Splish Company’s incremental borrowing rate is 12% a year (1% amonth). Simon’s implicit rate is unknown.

1.		Noncancelable term of 50 months.
2.		Rental of $360 per month (at end of each month). (The presentvalue at 1% per month is $14,111.)
3.		Estimated residual value after 50 months is $1,150. (Thepresent value at 1% per month is $699.) Splish Company guaranteesthe residual value of $1,150.
4.		Estimated economic life of the automobile is 60 months.
5.		Splish Company’s incremental borrowing rate is 12% a year (1% amonth). Simon’s implicit rate is unknown.