Assume that on January 1, 2014, Yard Waste Corp. signs a 5-year noncancelable lease agreement to lease an

industrial-strength mulching machine. The following information pertains to this lease agreement.

1. The agreement requires equal rental payments of $96,680 beginning on December 31, 2014.

2. The fair value of the machine on January 1, 2014, is $400,000.

3. The machine has an estimated economic life of 10 years, with an unguaranteed residual value of

$35,000. The lease contains a bargain purchase price of $2,000.Yard Waste depreciates similar machines

on the straight-line method.

4. The lease is nonrenewable. At the termination of the lease, the machine reverts to the lessor.

5. Yard Waste