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Question - On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease term is six-year requires payment of $87,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. If the fair value of the machine is $520,000, and the machine will be reverting to GMC Corp at the end of lease term.
The present value of an annuity due of 1 for six years at 10% is 4.79079.
The present value of an annuity due of 1 for six years at 8% is 4.99271.
What the leased machine will be recorded in the Arab Corp. books as lessee?
a. $509,256.
b. $488,661.
c. $434,366.
d. $520,000.
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