Metcalf Company leases a machine from Vollmer Corp. under an agreement which mee

Question

Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a capital lease for Metcalf. The six-year lease requires payment of $102,000 at the beginning of each year, including $15,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. 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. Metcalf should record the leased asset at


a. $416,799.

b. $488,661

c. $434,366.

d. $509,256.

Explanation / Answer

     (102,000 - 15,000) X 4.99271=

        87,000 X 4.99271=

        $434,365.77= ROUND UP

        $434,366.     SO THE ANSWER IS "C"

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