Question 5

Hayes Corp. is a manufacturer of truck trailers. On January 1, 2014, Hayes Corp. leases 9 trailers to Lester Company under a 5-year noncancelable lease agreement. The following information about the lease and the trailers is provided: Equal annual payments that are due on January 1 each year provide Hayes Corp. with an 12% return on net investment (present value factor for 5 periods at 12% is 4.03735). Titles to the trailers pass to Lester at the end of the lease. The fair value of each trailer is $50,600. The cost of each trailer to Hayes Corp. is $45,800. Each trailer has an expected useful life of nine years. Collectibility of the lease payments is reasonably predictable and there are no important uncertainties surrounding the amount of costs yet to be incurred by Hayes Corp