Caterpillar financial service corporation a subsidiary of Caterpillar and Sterling construction sign a lease agreement dated January to 1st 2017 that calls for Catapillar to lease a backhoe to Sterling beginning January 1st 2017. the terms and provision of the lease agreement and other pertinent data, are as follows

That term of the lease is 5 years the lease agreement non cancelable, requiring rental payments of $20711.11 at the beginning of each year. the backhoe has a fair value at the commencement of the lease of a $100000 an estimated economic life of 5 years and a guarantee residual value of $5000 Sterling expects that it is probable and the expected value of the residual value at the end of the lease will be greater than their guaranteed amount $5000.