The following facts pertain to a noncancelable lease between JK Co. and Lessor Inc 1/1/2010 Inception date Annual lease payment due each January 1, beginning with January 1, 2010 (excluding executory costs) Lease term (years) Economic life of equipment (years) Book value (equal to cost) of the equipment to lessor Fair value of the equipment on January 1, 2010 Expected residual value of equipment at end of lease term (guaranteed by JK) Lessee's incremental borrowing rate Lessor's implicit interest rate Annual executory costs are paid by lessee at the beginning of year $18,000 5 7 $75,000 $85,000 $8,000 10% 12% $2,000 The equipment reverts back to lessor at the end of the lease term. JK has never had any problems paying its bills as they come due. Lessor provides no ongoing services under the lease. Use straight-line method for depreciation. This is a sales-type lease to lessor because: The present value of the minimum lease payments is bigger than 90% of the fair value of the leased property The collectibility of the payments is reasonably predictable and lessor's performance is complete. The fair value of the leased asset is bigger than the book value of the leased asset on lessor's book. All of the above