On January 1, 2020, Wildhorse Company leased equipment to Daylight Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 4 years. At the end of the lease term, Daylight has the option to purchase the equipment for $2,100, while the expected residual value at the end of the lease is $15,000. 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 $221,000, and its cost is $192,000. 4. The equipment has an economic life of 5 years. Daylight depreciates all of its equipment on a straight-line basis. 5. 6. Wildhorse set the annual rental to ensure a 4% rate of return. Daylight's incremental borrowing rate is 5%, 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.