On December 31, 2011, Gephardt Enterprises leased equipment from B & B Equipment Rental. Pertinent lease transaction data are as follows:

• The estimated seven-year useful equipment life coincides with the lease term.

• The first of the seven equal annual $200,000 lease payments was paid on December 31, 2011

• B & B's implicit interest rate of 12 percent is known to Gephardt.

• Gephardt's incremental borrowing rate is 14 percent.

• Present values of an annuity of 1 in advance for seven periods are 5.11 at 12 percent and 4.89 at 14 percent.

Gephardt should record the equipment on the books at

a. $1,400,000.

b. $1,022,000.

c. $978,000.

d. $0."