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On January 1, 2019, Alsvin Company enters into a lease of equipment with Benni Company...

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Accounting

On January 1, 2019, Alsvin Company enters into a lease of equipment with Benni Company with a lease term of four years. The lease is properly accounted for as an operating lease. The rate Benni charges Alsvin in the lease is not readily determinable by Alsvin, whose incremental borrowing rate is 8%. The first annual payment, due at the inception of the lease, is $20,000. The annual payment increases each year by an amount equal to $20,000 multiplied by the annual Consumer Price Index (CPI) increase. The CPI is expected to increase at a rate of 2% per year on a noncumulative basis.

Additional information:
Present value of an annuity due of $1 for 4 periods at 8% 3.58
Present value of $1 in one period at 8% 0.93
Present value of $1 in two periods at 8% 0.86
Present value of $1 in three periods at 8% 0.79
Present value of $1 in four periods at 8% 0.74

At the beginning of the lease term, Alsvin Company should initially record a right-of-use asset of

a. $73,464 b. $76,612 c. $73,608 d. $71,600

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