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East Company leased a new machine from North Company on May 1, 2010 under a lease with the following information:

Lease Term 10 years
Annual rental payable at the beginning of each lease year $40,000
Estimated life of machine 12 years
Implicit interest rate 14%
Present value of annuity of $1 in advance for 10 periods at 14% 5.95
Present value of $1 for 10 periods at 14%

East has the option to purchase the machine at the end of the lease by paying $50,000, which approximates the expected value of the machine on the option exercise date. On May 1, 2010, East should record as capitalized leased asset of:

a. $251,500

b. $238.000

c. $224,500

d. 198,000

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  • Category:- Accounting Basics
  • Reference No.:- M946139

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