On January 1, 2020, Sunland Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2.000, while the expected residual value at the end of the lease is $5,000. 2 Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $140,000, and its cost is $110,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. 6. Sunland set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31.