Monty Corporation leased equipment to Teal Mountain, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,652 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $8,000, a book value of $6,000, and Monty expects a residual value of $5,500 at the end of the lease term. Monty set the lease payments with the intent of earning a 7% return, though Teal Mountain is unaware of the rate implicit in the lease and has an incremental borrowing rate of 9%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) |