Sheffield Corporation leased equipment to Sage Hill, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,394 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $9,200, a book value of $7,200, and Sheffield expects a residual value of $6,700 at the end of the lease term. Sheffield set the lease payments with the intent of earning a 8% return, though Sage Hill is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)