On December 31, 2006, Day Co. leased a new machine from Parr with the following pertinent information:
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Lease term |
6 years |
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Annual rental payable at beginning of each year |
$50,000 |
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Useful life of machine |
8 years |
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Day’s incremental borrowing rate |
15% |
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Implicit interest rate in lease (known by Day) |
12% |
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Present value of annuity of 1 in advance for 6 periods at |
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12% |
4.61 |
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15% |
4.35 |
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The lease is not renewable, and the machine reverts to Parr at the termination of the lease. The cost of the machine on Parr’s accounting records is $375,500. At the beginning of the lease term, Day should record a lease liability of
- $375,500
- $230,500
- $217,500
- $0