What the right-of-use asset would be recorded at

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Problem 1: On October 1, 2018, Sonoma Company leased equipment from Napa Inc. in lease payable in five equal annual payments of $500,000, beginning Oct 1, 2019. Similar transactions have carried an 11% interest rate. Sonoma Company expects the residual value at Oct. 1, 2023 to be $30,000. Negotiations led to Napa Inc. guaranteeing a $50,000 residual value. The right-of-use asset would be recorded at:

Option 1: $2,500,000
Option 2: $1,847,950
Option 3: $1,859,819
Option 4: None of these answer choices is correct

Reference no: EM132856658

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