Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Flounder Company. The following information relates to this agreement.

1.The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years.

2.The fair value of the asset at January 1, 2017, is $73,300.

3.The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $6,400, none of which is guaranteed.

4.Flounder Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $810 to Rocky Mountain Insurance Company for insurance and (2) $1,490 to Laclede County for property taxes.

5.The agreement requires equal annual rental payments of $16,307.79 to the lessor, beginning on January 1, 2017.

6.The lessees incremental borrowing rate is 12%. The lessors implicit rate is 9% and is known to the lessee.

7.Flounder Company uses the straight-line depreciation method for all equipment.

8.Flounder uses reversing entries when appropriate.