ACCR entered into a lease agreement on January 1 for the land and building that is used as the repair and body shop. ACCR is required to make monthly payments of $2,500, commencing January 31, for a 10-year period (at which point, John expects to be fully retired and live off of his pension). The following additional information is available regarding the lease: . The rate implicit in the lease is 7%. . The building and land have fair values of $170,000 and $56,667, respectively. . The building has a useful life of approximately 13 years. . The lease payments were set to provide the lessor with a return of 60% related to the building and 40% related to the land. . There is no bargain purchase option, or renewal option, at the end of the lease. . The capital asset breakdown is as follows: Capital Assets Cost Accumulated Depreciation Net Book Value Machinery and equipment $250,000 $15.500 $234,500 Leasehold improvements 10,000 1,000 9,000 Office equipment 25,000 3,125 21,875 Vehicles 25,000 3,125 21,875 $310,000 $22,750 $287,250 The leasehold improvements include changes to the building and land (e.g., paving). The machinery and equipment is expected to have a residual value of $95,000 after their 10-year useful life. Both the office equipment and vehicle are expected to have useful lives of eight years, with no residual values