On January 1, 2015, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for industrial equipment. Annual lease payments of $10,000 are payable at the end of each year. Day knows that the lessor expects a 10 percent return on the lease. Day has a 12 percent incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party has guaranteed to pay Ward a residual value of $5,000 at the end of the lease.
The present value of an ordinary annuity of $1 at
- 12% for 10 years is 5.6502
- 10% for 10 years is 6.1446
- The present value of $1 at
- 12% for 10 years is 0.3220
- 10% for 10 years is 0.3855
On Day's October 31, 2015, balance sheet, the principal amount of the lease obligation was
- $61,446.
- $58,112.
- $56,502.
- $63,374.