On January 1, 2019, Blue Co. leased a new machine from Green Co. The following information pertains to the lease:

Lease term		5	years
Annual rental payable at beginning of each year	$	55,000
Useful life of machine		7	years
Blue’s incremental borrowing rate		12	%
Implicit interest rate in lease (known by Blue)		10	%
Present value of annuity of $1 in advance for 5 periods at
10%		4.17
12%		4.04

The cost of the machine on Green’s accounting records is $214,500. It is customized for Blue’s use with no alternative use to Green at the end of the lease term. At the beginning of the lease term, Blue Co. should initially record a right-of-use asset of

a. $214,500
b. $222,200
c. $229,350
d. $174,350

Answer rating: 100% (QA)

First lets calculate the present value factor for the five annual rent payments Present Value PV ... View the full answer