Blue Ltd and Sky Ltd enter into a finance lease agreement with the following terms:

• Lease term is 7 years
• Estimated economic life of the leased asset is 10 years
• 7 annual rental payments of $25 000 each payable in advance
• Guaranteed residual value at the end of the lease term is $10 000
• Initial direct costs of $2000 incurred by the lessee
• $5000 is the amount of the residual value guarantee that was expected to be payable by the lessee at the end of the least term
• Interest rate implicit in the lease is 10%.

On inception date, the present value of the lease payments is:

$ 113,447

$ 111,447

$ 138,447

$ 136,447