C is corrent. The requirement is to determine the amount of the capitalized value of the leased equipment. The equipment should be capitalized as the present value of the minimum lease payments. The present value of the minimum lease payments at January 2 is calculated as the present value of the annuity due factor times the payment, or $2,675,000 (5.35 x $500,000).
A is incorrect. The equipment should be capitalized as the present value of the minimum lease payments. The present value of the minimum lease payments at January 2 is calculated as the present value of the annuity due factor times the payment, or $2,675,000 (5.35 x $500,000).
B is incorrect. The equipment should be capitalized as the present value of the minimum lease payments. The present value of the minimum lease payments at January 2 is calculated as the present value of the annuity due factor times the payment, or $2,675,000 (5.35 x $500,000).
D is incorrect. The equipment should be capitalized as the present value of the minimum lease payments. The present value of the minimum lease payments at January 2 is calculated as the present value of the annuity due factor times the payment, or $2,675,000 (5.35 x $500,000).
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