Cullumber Corp., a lessee, entered into a non$-$cancellable lease agreement with Galt Manufacturing Ltd$.,$ a lessor, to lease special$-$purpose equipment for a period of seven years. Cullumber follows IFRS and Galt follows ASPE. The following information relates to the agreement:

Lease inception

Annual lease payment due at the beginning of each lease year

Residual value of equipment at end of lease term, guaranteed by an independent third party

May $2,2023$

Economic life of equipment

Usual selling price of equipment

Manufacturing cost of equipment on lessor's books

Lessor's implicit interest rate, known to lessee

Lessee's incremental borrowing rate

Repairs and maintenance per year to be paid by lessee, estimated

$$97,600$

$10$ years

$$403,200$

$$317,800$

$12\%$

$12\%$

$$13,870$

The leased equipment reverts to Galt at the end of the lease, although Cullumber has an option to purchase it at its expected fair value at that time.

Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.