Sunland Corporation entered into a lease agreement on January $1,2025,$ to provide Sheridan Company with a piece of machinery. The

terms of the lease agreement were as follows.

The lease is to be for $3$ years with rental payments of $$13,288$ to be made at the beginning of each year.

The machinery has a fair value of $$60,000,$ a book value of $$40,000,$ and an economic life of $8$ years.

At the end of the lease term, both parties expect the machinery to have a residual value of $$25,000,$ none of which is

guaranteed.

The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is

not of a specialized nature.

The implicit rate is $5\%,$ which is known by Sheridan.

Collectibility of the payments is probable.