On August 1, 2007 Kern Company leased a machine to Day Company for a six year period requiring payments of $10,000 at the beginning of each year. The machine cost $48,000, which is the fair value at the lease date, and has a useful life of eight years with no residual value. Kern’s implicit interest rate is 10% and present value factors are as follows:
|
Present value for an annuity due of $1 at 10% for six periods |
4.791 |
|
Present value for an annuity due of $1 at 10% for eight periods |
5.868 |
Kern appropriately recorded the lease as a direct financing lease. At the inception of the lease, the gross lease receivables account balance should be
a. $60,000
b. $58,680
c. $48,000
d. $47,910