On December 31, 20X5, Day Co. leased a new machine from Parr with the following pertinent information: Lease term 6 years Annual rental payable at beginning of each year $50,000 Useful life of machine 8 years Day's incremental borrowing rate 15% Implicit interest rate in lease (known by Day) 12% Present value of an annuity of one in advance for six periods at:. 12% 4.61
15% 4.35
The lease is not renewable, and the machine reverts to Parr at the termination of the lease. The cost of the machine on Parr's accounting records is $375,500. At the beginning of the lease term, Day should record a lease liability of:.
a. $230,500.
b. $375,500.
c. $0.
d. $217,500.