Carla Leasing Company agrees to lease equipment to Sarasota 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 $485,000, and the fair value of the asset on January 1, 2020, is $687,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Sarasota estimates that the expected residual value at the end of the lease term will be 60,000. Sarasota 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.		Carla desires a 10% rate of return on its investments. Sarasotas incremental borrowing rate is 11%, and the lessors implicit rate is unknown.