Ayayai Leasing Company agrees to lease equipment to Pina Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $559,000, and the fair value of the asset on January 1, 2020, is $724,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Pina estimates that the expected residual value at the end of the lease term will be 60,000. Pina amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Ayayai desires a 10% rate of return on its investments. Pinas incremental borrowing rate is 11%, and the lessors implicit rate is unknown.

(Assume the accounting period ends on December 31.) Click here to view factor tables.

(a)

	Your answer is correct.

Discuss the nature of this lease for both the lessee and the lessor. This is a

finance leasesales-type leaseoperating lease

for Pina. This is a

operating leasefinance leasesales-type lease

for Ayayai.

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Attempts: 3 of 5 used

(b)

	Your answer is correct.

Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)

Annual rental payment

$

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Attempts: 1 of 5 used

(c)

	Your answer is incorrect. Try again.

Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)

Present value of minimum lease payments

$