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What amount should robbins record as lease liability

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Question

Robbins, Inc. leased a machine from Ready Leasing Co. The lease qualifies as a capital lease and requires 10 annual payments of $10,000 beginning immediately.

The lease specifies an interest rate of 12% and a purchase option of $10,000 at the end of the tenth year, even though the machine's estimated value on that date is $20,000. Robbins' incremental borrowing rate is 14%.

The present value of an annuity due of $1 at:

12% for 10 years is 6.328

14% for 10 years is 5.946

The present value of $1 at:

12% for 10 years is .322

14% for 10 years is .270

What amount should Robbins record as lease liability at the beginning of the lease term?

Reference no: EM132325614

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