Reference no: EM133069394

Question - On Jan. 1, 2020, Schrute Company leases an automobile with a fair value of $17,000 from Rainn, Inc., on the following terms:

1. Non-cancelable term of 40 months.

2. Rental of $445 per month (at the beginning of each month, first payment on 1/1/2020).

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 50 months.

5. Schrute's incremental borrowing rate is 6% a year (0.5% a month). Rainn's implicit rate is unknown.

Present Value of an Annuity Due with 6% and 50 periods: 16.70757

Present Value of an Annuity Due with 6% and 40 periods: 15.94907

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

Present Value of an Annuity Due with 0.5% and 40 periods: 36.35309

Make the journal entry to record the monthly lease payment and the interest expense (combined in one entry) for Feb. 1, 2020 includes a debit to lease liability for?

a) $366

b) $0

c) $348

d) $411