The John-Jacob Manufacturing Co. is leasing a piece of equipment for 5 years. The annual lease payment is $25,000. The rate implicit in the lease is 12% and the present balance of the lease payments is $90,500. This is a non-cancelable lease where the equipment can be purchased at the end of the lease term for $1.

1. What amount should be booked to the equipment account at the inception of the lease?

a. $7,860

b. $125,000

c. $34,500

d. $90,500