Brecker company leases an automobile with a fair value of, Ask an Expert

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Brecker Company leases an automobile with a fair value of $10,906 from Emporia Motors, Inc., on the following terms.

1. Noncancelable term of 50 months.

2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.)

3. Estimated residual value after 50 months is $1,180. (The present value at 1% per month is $715.) Brecker Company guarantees the residual value of $1,180.

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

5. Brecker Company's incremental borrowing rate is 12% a year (1% a month). Emporia's implicit rate is unknown.

a) Record the first month's depreciation on Brecker Company's books (assume straight-line).

b) Record the first month's lease payment.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9991027

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