On January 1, 2012, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease.
| 1. | The term of the noncancelable lease is6years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. | |
| 2. | Equal rental payments are due on January 1 of each year, beginning in 2012. | |
| 3. | The fair value of the equipment on January 1, 2012, is $233,000, and its cost is $195,720. | |
| 4. | The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,560. Woods depreciates all of its equipment on a straight-line basis. | |
| 5. | Palmer sets the annual rental to ensure an8% rate of return. Woods’s incremental borrowing rate is9%, and the implicit rate of the lessor is unknown. | |
| 6. | Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor. |
(Both the lessor and the lessee’s accounting period ends on December 31.) I need the annual rent payment.
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