Pharoah Leasing Company signs an agreement on January $1,2025,$ to lease equipment to Sheridan Company. The following information relates to this agreement.

The term of the non$-$cancelable lease is $6$ years with no renewal option. The equipment has an estimated economic life of $6$ years.

The cost of the asset to the lessor is $$451,000.$ The fair value of the asset at January $1,2025,$ is $$451,000.$

The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $$24,225,$ none of which is guaranteed.

The agreement requires equal annual rental payments, beginning on January $1,2025.$

Collectibility of the lease payments by Pharoah is proble.

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