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Pearl Company, a machinery dealer, leased manufacturing equipment to Mays Corporation on January 1, 2017. The lease is for a 7- year period and

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Pearl Company, a machinery dealer, leased manufacturing equipment to Mays Corporation on January 1, 2017. The lease is for a 7- year period and requires equal annual payments of $26,143 at the beginning of each year. The first payment is received on January 1, 2017. Pearl had purchased the machine during 2016 for $75,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Pearl. Pearl set the annual rental to ensure an 8% rate of return. The machine has an economic life of 8 years with no residual value and reverts to Pearl at the termination of the lease.

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