On December 31, 2014, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $1,050,000 (including $50,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2014, and the second payment was made on December 31, 2015. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $4,170,000. The lease is appropriately accounted for as a capital lease by Harris. In its December 31, 2015 balance sheet, Harris should report a lease liability of
A) $3,170,000.
B) $3,120,000.
C) $2,853,000.
D) $2,487,000.

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The Answer of On December 31, 2014, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are $1,050,000 (including $50,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2014, and the second payment was made on December 31, 2015. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $4,170,000. The lease is appropriately accounted for as a capital lease by Harris. In its December 31, 2015 balance sheet, Harris should report a lease liability of
A) $3,170,000.
B) $3,120,000.
C) $2,853,000.
D) $2,487,000.