1. On January 1, 2019, Blue Co. leased a new machine from Green Co. The following information pertains to the lease:

Lease term		5	years
Annual rental payable at beginning of each year	$	55,000
Useful life of machine		7	years
Blues incremental borrowing rate		12	%
Implicit interest rate in lease (known by Blue)		10	%
Present value of annuity of $1 in advance for 5 periods at
10%		4.17
12%		4.04

The cost of the machine on Greens accounting records is $214,500. It is customized for Blues use with no alternative use to Green at the end of the lease term. At the beginning of the lease term, Blue Co. should initially record a right-of-use asset of

a. $214,500 b. $222,200 c. $229,350 d. $174,350

2. On January 1, 2019, Alsvin Company enters into a lease of equipment with Benni Company with a lease term of four years. The lease is properly accounted for as an operating lease. The rate Benni charges Alsvin in the lease is not readily determinable by Alsvin, whose incremental borrowing rate is 8%. The first annual payment, due at the inception of the lease, is $20,000. The annual payment increases each year by an amount equal to $20,000 multiplied by the annual Consumer Price Index (CPI) increase. The CPI is expected to increase at a rate of 2% per year on a noncumulative basis.

Additional information:
Present value of an annuity due of $1 for 4 periods at 8%	3.58
Present value of $1 in one period at 8%	0.93
Present value of $1 in two periods at 8%	0.86
Present value of $1 in three periods at 8%	0.79
Present value of $1 in four periods at 8%	0.74
At the beginning of the lease term, Alsvin Company should initially record a right-of-use asset of a. $73,464 b. $76,612 c. $73,608 d. $71,600