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On January 1, Year 4, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make 5 annual payments of $13,000 beginning
On January 1, Year 4, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make 5 annual payments of $13,000 beginning January 1, Year At the end of the lease term, December 31, Year 8, Babson guarantees the residual value of the automobiles will total $30,000. Babson estimates that it will probably owe only $10,000 at the end of the lease term under the residual value guarantee. The interest rate implicit in the lease is 9%. Present value factors for the 9% rate implicit in the lease are as follows: For an annuity due with 5 payments 4.240 For an ordinary annuity with 5 payments 3.890 Present value of $1 for 5 periods 0.650 Babson's recorded lease liability immediately after the first required payment should be A $48,620 B $44,070 $35,620 D $61,620
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