ABC signed a 5-year operating lease agreement whereby WXY Rentals will provide a truck which cost WXY $20,000. The lease payments are $2,500, payable…

ABC signed a 5-year operating lease agreement whereby WXY Rentals will provide a truck which cost WXY $20,000. The lease payments are $2,500, payable at the end of each year. The truck will revert to WXY at the end of five years. The truck has a 10-year useful life. At the inception of the lease, what should ABC do?

a) Make no journal entry

b) Record rental expense of $2,500 for the first year’s rental

c) Record the lease asset and a corresponding liability, at its current market value

d) Record the lease asset and a corresponding liability, at the present value of the five equal annual lease payments