C is corrent. ASC Topic 840 states that the lessee should compute the PV of the minimum lease payments using the lesser of the lessee’s incremental borrowing rate (14% in this case) or the implicit rate used by the lessor if known (10% in this case). The PV of the minimum lease payments should be computed using the implicit rate of 10% because it is known by the lessee and is lower than the incremental rate.
A is incorrect. ASC Topic 840 states that the lessee should compute the PV of the minimum lease payments using the lesser of the lessee’s incremental borrowing rate (14% in this case) or the implicit rate used by the lessor if known (10% in this case). The PV of the minimum lease payments should be computed using the implicit rate of 10% because it is known by the lessee and is lower than the incremental rate.
A is incorrect. ASC Topic 840 states that the lessee should compute the PV of the minimum lease payments using the lesser of the lessee’s incremental borrowing rate (14% in this case) or the implicit rate used by the lessor if known (10% in this case). The PV of the minimum lease payments should be computed using the implicit rate of 10% because it is known by the lessee and is lower than the incremental rate.
D is incorrect. The prime rate (8%) is never used unless it happens to be the same as the incremental or implicit rate.
| 
