20

Company A leased equipment it purchased for $600,000 to Company B. The arrangement specifies annual payments beginning at the commencement of the lease for 7 years. The lessee has the option to purchase the machine after 4 payments for $120,000. Company A is reasonably certain Company B will exercise the option. The annual interest rate is set at 8%. The lease payments are: $106,707 $143,076 $154,522 $167,734