Use current lease accounting rules

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Reference no: EM131456124

West Company leased a new machine from South Company on May 1, 2014 under a lease with the following information:

Lease term: 10 years

Annual rental payable at beginning of each lease year: $40,000

Useful life of machine: 12 years

Implicit interest rate: 14%

Present value factor for an annuity of 1 in advance for 10 periods at 14%: 5.95

Present value factor for 1 for 10 periods at 14%: 0.27

West has the option to purchase the machine on May 1, 2024 by paying $50,000, which approximates the expected fair value of the machine on the option exercise date. On May 1, 2014, East should record a capitalized lease asset of:

a. $251,500

b. 238,000

c. $224,500

d. 198,000

Please use current lease accounting rules to answer this question.

Reference no: EM131456124

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