East Company leased a new machine from North Company on May 1, 2006, under a lease with the following information:
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|
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 of an annuity of one in advance for ten periods at 14% |
5.95 |
|
Present value of one for ten periods at 14% |
0.27 |
East has the option to purchase the machine on May 1, 2016 by paying $50,000, which approximates the expected fair value of the machine on the option exercise date. On May 1, 2006, East should record a capitalized lease asset of
- $251,500
- $238,000
- $224,500
- $198,000