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On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: 1) Price to make

On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:

1)

Price to make annual payments of $60,000 at the end of each year (starting on Dec. 31, 2012) for five years. Porter must return the equipment to the lessor end of this period.

2)

The machinery has an estimated useful life of 6 years and no expected salvage value.

3)

Porter uses the straight-line method of depreciation for all of its fixed assets.

4)

Porters incremental borrowing rate is 8%.

5)

The fair value of the asset at January 1, 2012 is $275,000.

At January 1, 2012, Porter should record an asset and liability with respect to the equipment lease equal to

a.

$258,726

b.

$239,562

c.

$275,000

d.

$0

ANSwer is B but why ???

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