George (lessee) leased a tractor with a useful life of 15 years from RentalCo (lessor) on January 1, 2015. RentalCo approximated a 12% rate when crafting the lease agreement, but George was not privy to that information. The equipment has a fair value of $190,000 and RentalCos cost is $172,000. A third party has guaranteed the residual value $12,000. RentalCo paid $3,000 in legal fees during December 2014 prior to executing the lease agreement. Georges incremental borrowing rate is 10%. Under the lease agreement, ten annual lease payments of $27,480 are due each January 1, beginning January 1, 2015. George paid $1,500 of initial direct costs (commission paid to a lease negotiator).

a) What is reported on the 12/31/15 balance sheet as Lease Receivable, net for RentalCo?

b) Ignoring taxes, what is the increase on RentalCos 2015 Net Income related to the lease?