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 $200,000, and its cost is $150,000. 4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. 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