Teal Mountain Company leases an automobile with a fair value of $20,014 from John Simon Motors, Inc., on the following terms:1. Non-cancelable term of 50 months.2. Rental of $410 per month (at the beginning of each month). (The present value at 0.5% per month is $18,190.)3. Teal Mountain guarantees a residual value of $1,840 (the present value at 0.5% per month is $1,434). Teal Mountain expects the probable residual value to be $1,840 at the end of the lease term.4. Estimated economic life of the automobile is 60 months.5. Teal Mountain’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. Record the first month’s lease payment (at commencement of the lease). (Credit account 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 ExplanationDebitCreditenter an account titleenter a debit amountenter a credit amountenter an account titleenter a debit amountenter a credit amount

Journal entry to record first month's lease payment is as under:

Answered: eal Mountain Company leases an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Teal Mountain Company leases an automobile with a fair value of $20,014 from John Simon Motors, Inc., on the following terms:

1.		Non-cancelable term of 50 months.
2.		Rental of $410 per month (at the beginning of each month). (The present value at 0.5% per month is $18,190.)
3.		Teal Mountain guarantees a residual value of $1,840 (the present value at 0.5% per month is $1,434). Teal Mountain expects the probable residual value to be $1,840 at the end of the lease term.
4.		Estimated economic life of the automobile is 60 months.
5.		Teal Mountain’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown.

Record the first month’s lease payment (at commencement of the lease). (Credit account 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

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