Reference no: EM131751341

On January 1 of the current year, Tire Company enters into a five-year lease agreement for production equipment. The lease requires Tire Co to pay $12,500 per year in lease payments. At the end of the five-year lease term, Tire Co can purchase the equipment for $30,000. The fair value of the equipment $75,000. The estimated useful life of the equipment is 10 years. The present value of the lease payments is $50,000. The present value of the purchase option is $20,000. Tire's controller believes the purchase option price is sufficiently below the expected fair value of the equipment at the date the option becomes exercisable to reasonably assure its exercise. Tire Co would normally depreciate equipment of this type using the straight-line method. What amount is the carrying value of the asset related to this lease at December 31, of the current year?

$40,000
$45,000
$56,000
$63,000