The Presto case in the textbook focuses on ASC 842, Leases. Consider a new lease scenario. Beaker Corp. leases non-specialized equipment from ABC Leasing. The details of the lease follow: On January 1, 2022, Beaker signs a 4-year lease agreement. The lease requires Beaker to make annual payments of $12,300 beginning on the day the lease is signed and on each January 1 thereafter through January 1, 2025. The equipment has a 4-year useful life and fair value of $55,750. Ownership of the equipment reverts back to ABC at lease-end. Using the lessees incremental borrowing rate of 10.0% (lessors implicit rate is not known), the present value of lease payments is $42,888. Collectibility of payments from Beaker is probable.

Suppose the lease agreement also included the following provision: Beaker guarantees that the equipment will have a residual value of $5,600 at the end of the lease term.

Assume that the expected residual value of the equipment is $2,240. What, if any, portion of the residual value guarantee should be included in Beakers initial measurement of the lease liability (PV of lease payments)?

A. $3360 (the amount probable of being owed)

B. $5600 (the full residual value guarantee)

C. None