Sheridan Leasing Company agrees to lease equipment to Skysong Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 6 years with no renewal option, and the machinery has an estimated economic life of 8 years. 2. The cost of the machinery is $313,000, and the fair value of the asset on January 1, 2020, is $441,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $36,300. Skysong estimates that the expected residual value at the end of the lease term will be $36,300. Skysong amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 4. 5. The collectibility of the lease payments is probable. 6. Sheridan desires a 6% rate of return on its investments. Skysong's incremental borrowing rate is 8%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31 and that neither company uses reversing entries.)