On January 1, 2013, Ballieu Company leases specialty equipment with an economic life of 10 years to Anderson Company. The lease contains the following terms and provisions:

• The lease is noncancelable and has a term of 10 years.
• The annual rentals are $28,700, payable at the beginning of each year.
• The interest rate implicit in the lease is 12%.
• Anderson agrees to pay all executory costs and is given an option to buy the equipment for $1 at the end of the lease term.
• The cost of the equipment to the lessor is $153,000, and the fair retail value is approximately $181,600.
• The lessor incurs no material initial direct costs.
• The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
• The lessor estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.

The lessor calculates that the present value on January 1, 2013 of 10 annual payments in advance of $28,700 discounted at 12% is $181,620.78 (the $1 purchase option is ignored as immaterial).