On January 1, 2010 the Caswell Company signs a 10-year cancelable (at the option or either party) agreement to lease a storage building from the Wake Company. The following information pertains to this lease agreement. 1. The agreement requires rental payments of $100,000 at the end of each year. 2. The cost and fair value of the building on January 1, 2010 is $2 million. 3. The building has an estimated economic life of 50 years, with no residual value. The Caswell Company depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswell's incremental borrowing rate is 14% per year. The Wake Company set the annual rental to ensure a 16% rate of return. (the loss in service value anticipated for the term of the lease) 6. Executory costs of $7,000 annually, related to taxes on the property, are paid by Wake Company