1. At the beginning of current year, Day Company leased a new machine from Parr with the following pertinent information:

Lease term 5 years

Annual rental payable at beginning of each year 500,000

Useful life of machine 8 years

Implicit interest rate in lease 12%

Present value of an annuity of 1 in advance for 5 periods at 12% 4.04

Present value of an ordinary annuity of 1 for 5 periods at 12% 3.60

The lease is not renewable and the machine reverts to Parr at the termination of the lease. The cost of the machine on Parr's accounting records is 3,755,000.

1. At the beginning of the lease term, what amount should be recorded as cost of right of use asset?

a. 1,800,000

b. 2,020,000

c. 3,755,000

d. 2,100,000

2. What is the depreciation of the right of use for the current year?

a. 252,500

b. 404,000

c. 360,000

d. 751,000