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Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Bonita Company. The following information relates to this agreement. 1. The

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Bonita Company. The following information relates to this agreement.

1. The term of the non-cancelable lease is 3 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, 2020, is $78,000.
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 $7,000, none of which is guaranteed.
4. The agreement requires equal annual rental payments of $24,869.98 to the lessor, beginning on January 1, 2020.
5. The lessees incremental borrowing rate is 5%. The lessors implicit rate is 4% and is unknown to the lessee.
6. Bonita uses the straight-line depreciation method for all equipment.

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