Problem
On January 1, 2014, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of $13,000, beginning January 1, 2014. At the end of the lease term on December 31, 2018, Babson guarantees that 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%.
Required:
AICPA Compute Babson’s recorded capital lease liability immediately after the first required payment