Larkspur Leasing Company agrees to lease equipment to Cullumber 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 $520,000, and the fair value of the asset on January 1, 2020, is $737,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Cullumber estimates that the expected residual value at the end of the lease term will be 60,000. Cullumber amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 4. 5. The collectibility of the lease payments is probable. 6. Larkspur desires a 10% rate of return on its investments. Cullumber's incremental borrowing rate is 11%, and the lessor's Implicit rate is unknown. (Assume the accounting period end on December 31.)