Chapter 18, Problem 18.1MC

Baxter Brothers, Inc. enters into a four-year equipment lease with annual payments of $700 per year. The lease payments are due at the beginning of each year. The implicit rate of interest is 5% and is known to Baxter. Baxter pays $250 in initial direct costs. The measurement of the lease liability and right of use asset are:

1. a. $2,482 and $2,782, respectively
2. b. $2,482 and $2,232, respectively
3. c. $2,606 and $2,856, respectively
4. d. $2,606 and $2,356, respectively