On January 1, 2012, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease.

1.		The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2.		Equal rental payments are due on January 1 of each year, beginning in 2012.
3.		The fair value of the equipment on January 1, 2012, is $223,500, and its cost is $187,740.
4.		The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,440. Woods depreciates all of its equipment on a straight-line basis.
5.		Palmer sets the annual rental to ensure an 11% rate of return. Woods