Reference no: EM132599625
Larkspur Company leases an automobile with a fair value of $10,844 from John Simon Motors, Inc., on the following terms:
1. Non-cancelable term of 50 months.
2. Rental of $220 per month (at the beginning of each month).
3. Larkspur guarantees a residual value of $1,120. Delaney expects the probable residual value to be $1,120 at the end of the lease term.
4. Estimated economic life of the automobile is 60 months.5.Larkspur's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.
Question 1: What is the nature of this lease to Larkspur?
Question 2: What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.)
Question 3: Record the first month's amortization on Larkspur's books (assume straight-line).