N Corp Entered into a Nine-Year Capital Lease on a Warehouse

N Corp. entered into a nine-year capital lease on a warehouse on December 31, 2009. Lease payments of $26,000, which includes real estate taxes of $1,000, are due annually, beginning on December 31, 2010, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; N's incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should N report as capitalized lease liability at December 31, 2009?

A) $150,000.
B) $156,000.
C) $225,000.
D) $234,000.The capitalized lease liability should be the annual lease payments less the executory cost (real estate taxes) times the present value factor for an ordinary annuity of 1 for nine years at 9%.The calculation would be: ($26,000 1,000) 6.0 = $150,000.The real estate taxes are a period cost and should be charged to expense.