Problem: On January 1, 2010, Hershey Co. leased a machine for 5 years at an annual rental of $64,000, payable on the date of signing the lease and each December 31 thereafter. The machine has an estimated useful life of 8 years and no salvage value. Hershey Co. has an option to purchase the machine for $1at the end of the lease. The market value of the machine is not known. Hershey's incremental borrowing rate is 8%.
1) What is the present value of the lease?
2) What is the impact of the lease on 2010 income statement and year-end balance sheet?