Waterway Leasing Company agrees to lease equipment to Wildhorse Corporation on January 1,2020 . The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $575,000, and the fair value of the asset on January 1,2020 , is $755,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Wildhorse estimates that the expected residual varye at the end of the lease term will be 50,000 . Wildhorse amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1,2020. 5. The collectibility of the lease payments is probable. 6. Waterway desires a 9% rate of return on its investments. Wildhorse's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.)