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Stellar Leasing Company agrees to lease equipment to Pearl Corporation on January $1,2025.$ The following information relates to the lease agreement.

The term of the lease is $7$ years with no renewal option, and the machinery has an estimated economic life of $9$ years.

The cost of the machinery is $$523,000,$ and the fair value of the asset on January $1,2025,$ is $$758,000.$

At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $$60,000.$ Pearl estimates that the expected residual value at the end of the lease term will be $$60,000.$ Pearl amortizes all of its leased equipment on a straight$-$line basis.

The lease agreement requires equal annual rental payments, beginning on January $1,2025.$

The collectibility of the lease payments is probable.

Stellar desires a $10\%$ rate of return on its investments. Pearl's incremental borrowing rate is $11\%,$ and the lessor's implicit rate is unknown.

$($Assume the accounting period ends on December $31.)$

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$($a$)$

Your answer is correct.

Discuss the nature of this lease for both the lessee and the lessor.

This is a for Pearl.

This is a for Stellar.

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$($b$)$

X Your answer is incorrect.

Calculate the amount of the annual rental payment required. $($Round present value factor calculations to $5$ decimal places, es$.1\mathrm{.}25124$ and the final answer to $0$ decimal places e$.8\mathrm{.}58,972..)$

Annual rental payment $

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