Sage Dairy leases its milking equipment from Pronghorn Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $28,900 due at the beginning of each year starting January 1, 2020. 2. 3. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $218,977 and a cost of $260,000 on Pronghorn Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $14,200, though Sage Dairy has guaranteed a residual value of $20,600 to Pronghorn Finance. The lease contains no renewal options, and the equipment reverts to Pronghorn Finance upon termination of the lease. The equipment is not of a specialized use. 4. Sage Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Sage Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable.