Raleigh, Inc. leased a piece of equipment from Ocala Co. The lease requires 10 annual payments of $30,000 beginning immediately. The lease contract specifies the rate implicit in the lease of 12% and a purchase option of $30,000 at the end of the tenth year, even though the machines estimated value on that date is $26,000. Raleigh, Inc., is certain to exercise the purchase option. Raleigh, Inc.s incremental borrowing rate is 14%.

Required:

1. What amount should Raleigh, Inc. record as a lease liability at the beginning of the lease term?
2. Prepare the journal entries
3. If the rate implicit in the lease were not known to the lessee, which interest right should the lessee use?