Wildhorse Company leases a building to Sandhill, Inc. on January $1,2025.$ The following facts pertain to the lease agreement.

The lease term is $4$ years, with equal annual rental payments of $$4,499$ at the beginning of each year.

Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.

The building has a fair value of $$17,800,$ a book value to Wildhorse of $$10,800,$ and a useful life of $5$ years.

At the end of the lease term, Wildhorse and Sandhill expect there to be an unguaranteed residual value of $$2,700.$

Wildhorse wants to earn a return of $9\%$ on the lease, and collectibility of the payments is probable. This rate is known by Sandhill.