Referring to the information in Brief Exercise 17-28, assume the same information except that the lessee guaranteed the residual value for \(\$ 5,000\) at the end of the lease term. Compute the value of the lease liability for the lessee on January 1,2020 , under the following separate scenarios.

a. The lessee estimates that the underlying asset will have a fair value of \(\$ 5,000\) at the end of the lease.

b. The lessee estimates that the underlying asset will have a fair value of \(\$ 2,000\) at the end of the lease.

Exercise 17-28

Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1,2020 . Lessee has agreed to pay \(\$ 28,000\) annually beginning immediately on January 1,2020 . The lessor estimates the residual value of the equipment to be \(\$ 5,000\) at lease end, but the lessee has not guaranteed the residual value. The economic life of the asset is 7 years. The lessee's incremental borrowing rate is \(7 \%\) and the lessor's implicit rate is not readily determinable by the lessee company. What is the value of the lease liability on January 1,2020 , assuming that the lease is properly classified as a finance lease?