Question - On August 1, year 1, Kern Company leased a machine to Day Company for a 6-year period requiring payments of $10,000 at the beginning of each year. The machine cost $48,000, which is the fair value at the lease date, and has a useful life of 8 years with no residual value. Kern's implicit interest rate is 10% and present value factors are as follows:
Present value of an annuity due of $1 at 10% for 6 periods: 4.791
Present value of an annuity due of $1 at 10% for 8 periods: 5.868
Kern appropriately recorded the lease as a direct financing lease. At the inception of the lease, the gross lease receivables account balance should be:
$60,000
$47,910
$58,680
$48,000