On December 31, 20X5, Day Co. leased a new machine from Parr with the following pertinent information:

Lease term

6 years

Annual rental payable at beginning of each year

$50,000

Useful life of machine

8 years

Day's incremental borrowing rate

15%

Implicit interest rate in lease (known by Day)

12%

Present value of an annuity of one in advance for six periods at:

12%

4.61

15%

4.35

The lease is not renewable, and the machine reverts to Parr at the termination of the lease. The cost of the machine on Parr's accounting records is $375,500. At the beginning of the lease term, Day should record a lease liability of

$375,500.

$0.

$217,500.

$230,500.