Rawlings Company Entered into a Direct-Financing Lease with Zubin Corporation

Rawlings Company entered into a direct-financing lease with Zubin Corporation, which called for seven annual rentals of $3,500 at an interest rate of 12 percent. The payments are to be paid and the end of each year. The lease also contained a bargain purchase option allowing Zubin to purchase the asset for $2,500 after making the seventh annual rental payment.
What was the cost of the asset?

A) $17,104
B) $18,473
C) $25,631
D) $27,000

Correct Answer:

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