Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the end of each year. The equipment has a fair value of $175,000 and an estimated useful life of 10 years. The lease includes a guaranteed residual value of $10,000. In addition to the lease payments, Pepper will pay $5,000 per year for a maintenance agreement. Pepper can finance this lease with its bank at a 12% rate. The lessors implicit lease rate, known to the lessee, is 10%. The lessor and the lessee use ASC 842 guidelines for lease accounting.

Present value interest factors are:

	10%	12%
PV factor of $1 for 10 periods	0.38554	0.32197
PV factor for ordinary annuity for 10 periods	6.14457	5.65022

Upon acquisition, the leased equipment will be valued on Peppers balance sheet at (Round intermediate and final answer to the nearest whole dollar amount.)

Multiple Choice

• $144,475.

• $157,469.

• $175,000.

• $250,000.