1. The Lessor enters into a lease where it leases equipment with a cost of $250,000 to a Lessee. The term of the lease is 10 years with annual payments of $45,000 received at the beginning of the year. The lease contains a provision where the lessee can purchase the equipment for $1000. The economic life of the equipment is 11 years.

The lessee is expected to exercise that option at the end of the lease. The implicit rate in the lease is 12%. What would the Lessors journal entry to record this lease when they enter into it with the Lessee. (The PVIFA for 10 years at 12% is 6.328250 and the PVIF at year 10 at 12% is 0.321973)

1. No entry is required at the inception of the lease

2. Right of use asset $285,093

Lease liability $285,093

3. Lease receivable $285,093

Sales revenue $285,093

4. Right of use asset $284,771

Lease liability $284,771