Question
Crane Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a capital lease for Crane. The 6-year lease
Crane Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a capital lease for Crane. The 6-year lease requires payment of $158000 at the beginning of each year, including $23800 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessors implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Crane should record the leased asset at
a) $772,565
b) $656,191
c) $741,952
d) $630,190
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