The following facts pertain to a noncancelable lease agreement between Sage Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2017 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of October 1, 2017 6 years 6 years $350,784 11% 11% each year, beginning with October 1, 2017 $74,700 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $5,700 per year and are to be paid each October 1, beginning October 1, 2017, (This $5,700 is not included in the rental payment of $74,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor. Annual Lease Interest (11%) on unpaid Reduction of Lease Balance of Lease 74,700 74,700 74,700 74,700 74,700 0/01/22448.200 10/01/17 10/01/17 10/01/18 10/01/19 10/01/20 10/01/21 Date Payment/Receipt Liability/Receivable Liability/Receivable Liability/Receivable $350,784 276,084 231,753 182,546 127,926 67,298 $74,700 44,331 49,207 54,620 60,628 67,298 $350,784 $30,369 25,493 20,080 14,072 74,700 97.41