On January 1, 2011, Babson, Inc. leased two automobiles for executive use. The lease requires Babson to make five annual payments of $13,000 beginning January 1, 2011.

At the end of the lease term, December 31, 2015, Babson guarantees the residual value of the automobiles will total

$10,000. The lease qualifies as a capital lease. The interest rate implicit in the lease is 9%. Present value factors for the 9% rate implicit in the lease are as follows:

For an annuity due with five payments 4.240 For an ordinary annuity with five payments 3.890 Present value of $1 for five periods 0.650 Babson’s recorded capital lease liability immediately after the first required payment should be

a. $48,620

b. $44,070

c. $35,620

d. $31,070