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On December 31, year 1, Day Co. leased a new machine from Parr with the following pertinent information: Lease term 8 years Annual rental payable
On December 31, year 1, Day Co. leased a new machine from Parr with the following pertinent information:
Lease term 8 years
Annual rental payable at beginning of each year $60,000
Useful life of machine 10 years
Day's incremental borrowing rate 15%
Implicit interest rate in lease (known by Day) 12%
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 $425,000.
Required:
At the beginning of the lease term, what should Day record as a lease liability?
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