Interstate Automobiles Corporation leased 40 vans to VIP Transport under a four-year noncancelable lease on January 1, 2016. Information concerning the lease and the vans follows:

a.		Equal annual lease payments of $300,000 are due on January 1, 2016, and thereafter on December 31 each year. The first payment was made January 1, 2016. Interstate's implicit interest rate is 10% and known by VIP.
b.		VIP has the option to purchase all of the vans at the end of the lease for a total of $290,000. The vans' estimated residual value is $300,000 at the end of the lease term and $50,000 at the end of 7 years, the estimated life of each van.
c.		VIP estimates the fair value of the vans to be $1,240,000. Interstate's cost was $1,050,000.
d.		VIP's incremental borrowing rate is 11%.
e.		VIP will pay the executory costs (maintenance, insurance, and other fees not included in the annual lease payments) of $1,000 per year. The depreciation method is straight-line.
f.		The collectibility of the lease payments is reasonably predictable, and there are no important cost uncertainties.