East Company leased a new machine from North Company on May 1, 2019, under a lease with

Question:

East Company leased a new machine from North Company on May 1, 2019, under a lease with the following information:
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 factor for an annuity of 1 in advance for 10 periods at 14% ....5.95
Present value factor for 1 for 10 periods at 14% ................................................0.27
East has the option to purchase the machine on May 1, 2029, by paying $50,000, which is significantly lower than the expected fair value of the machine on the option exercise date. On May 1, 2019, East should record a right-of-use asset of:
a. $251,500
b. $238,000
c. $224,500
d. $198,000

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...

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