Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease.

Lease term	5 years
Economic life of the leased equipment	6 years
Annual lease payments	$2,354
Payment date (rst payment due at lease commencement)	Annually on Jan. 1
Fair value of the leased equipment	$10,400
Lessor Corps carrying value of the leased equipment	$9,000
Rate implicit in the lease (known by lessee)	9.53%
Estimated fair value of the equipment at the end of the lease term	$800

b. Prepare a schedule of the lease liability for the rst two years of the lease term.