Problem:
On December 31, 2014, Day Company leased a new machine from Parr with the following pertinent information:
Lease term 6 years
Annual rental payable at begonnong of each year $50,000
Useful life of machine 8 years
Day's incremental borrowing rate 15%
implicit interest rate in lease(known by Day) 12%
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 $375,500.
Required:
1. Compute the amount of Day’s lease liability at the beginning of the lease term.