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Pusan, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments...

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Accounting

Pusan, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $450,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Pusan, Inc.s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pusan, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?

PV Annuity Due PV Ordinary Annuity

8%, 4 periods 3.57710 3.31213

10%, 4 periods 3.48685 3.16986

a.

$357,224
b.

$333,409
c. $364,512
d.

$286,108

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