ABC Corp is a manufacturer of truck trailers. On January 1, 2014, ABC Corp leases ten trailers to Ponce Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments that are due on January 1 each year provide ABC Corp with an 8% return on net investment.

2. Titles to the trailers pass to Ponce at the end of the lease.

3. The fair value of each trailer is $50,000. The cost of each trailer to ABC Corp is $45,000.

4. Each trailer has an expected useful life of nine years.

Instructions

(a) What type of lease is this for the lessor? Discuss.

(b) Calculate the annual lease payment. (Round to nearest dollar.)

(c) Prepare a lease amortization schedule for ABC Corp for the first three years.