Chapter 20, Problem 10MC

On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of $10,000 at the beginning of each year. The machine cost $40,000 and has a useful life of 8 years with no residual value. Kern’s implicit interest rate is 10%, and present value factors are as follows:

Present value for an annuity due of $1 at 10% for 6 periods    4.791

Present value for an annuity due of $1 at 10% for 8 periods    5.868

Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be:

1. a. $60,000
2. b. $58,680
3. c. $48,000
4. d. $47,910