East Company leased a new machine from North Company on May 1, 2007 under a lease with the following information:
|
Lease term |
10 years |
|
Annual rental payable at beginning of each lease year |
$40,000 |
|
Useful life of machine |
12 years |
|
Implicit interest rate |
14% |
|
Present value factor for an annuity of 1 in advance for 10 periods at 14% |
5.95 |
|
Present value factor for 1 for 10 periods at 14% |
0.27 |
East has the option to purchase the machine on May 1, 2017 by paying $50,000, which approximates the expected fair value of the machine on the option exercise date. On May 1, 2007 East should record a capitalized lease asset of
a. $251,500
b. $238,000
c. $224,500
d. $198,000