Pronghorn Leasing Company agrees to lease equipment to Stellar Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $514,000, and the fair value of the asset on January 1, 2020, is $677,000. 3. 4. 5. 6. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Stellar estimates that the expected residual value at the end of the lease term will be 55,000. Stellar amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is probable. Pronghorn desires a 10% rate of return on its investments. Stellar's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables.