Robbins, Inc. leased a machine from Ready Leasing Co.
The lease qualifies as a capital lease and requires ten 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
The present value of an annuity due of one at
12% for ten years is 6.328
14% for ten years is 5.946
The present value of one at
12% for ten years is .322
14% for ten years is .270
What amount should Robbins record as lease liability at the beginning
of the lease term?