Shamrock enters into an agreement with Traveler Inc. to lease a car on December 31, 2016. The following information relates to t
his agreement.
1. The term of the non-cancelable lease is 4 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it is expected to have no residual value at the end of the lease term.
2. The fair value of the car was $14,000 at commencement of the lease.
3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2017. The first payment is to be of an amount of $5,182.80, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,441.94 and the third and final payment will be $5,714.04).
4. Shamrock’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown.
5. Shamrock uses straight-line depreciation for all similar cars.
Prepare Shamrock’ journal entries for 2016, 2017, and 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 2 decimal places, e.g. 5,275.25.)
1. The term of the non-cancelable lease is 4 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it is expected to have no residual value at the end of the lease term.
2. The fair value of the car was $14,000 at commencement of the lease.
3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2017. The first payment is to be of an amount of $5,182.80, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,441.94 and the third and final payment will be $5,714.04).
4. Shamrock’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown.
5. Shamrock uses straight-line depreciation for all similar cars.
Prepare Shamrock’ journal entries for 2016, 2017, and 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 2 decimal places, e.g. 5,275.25.)
1 answer:
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Answer:
c. fall in the short run, and fall even more in the long run.
Explanation:
The aggregate demand shifts to the left in recession or contractions, in consequence the level of prices falls. For this analysis we consider the shor-run supply curve with a positive slop.
As we know, the economy in the long run tends to equilibrium, where the the production level is fixed and equal to the potential of production of the economy. The initial reduction of prices incentives the consumption in the long run, stabilizing with the long run quantites in a minor level of prices.
In the attached image you can observe the process described previously.
