On January 1, 2018, Winn Heat Transfer leased office space under a 3 year operating lease agreement. The arrangement specified three annual rent payments of $80,000 each beginning December 31, 2018, and at each December 31, 2020. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 5%. Winn also paid a $100,000 advance payment at the beginning of the lease in addition to the first $80,000 rent payment. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value.