Corinth Co. leased equipment to Athens Corporation for an eight-year period, at which time possession of the leased asset will revert back to Corinth. The equipment cost Corinth $16 million to manufacture and has an expected useful life of 12 years. Its normal sales price is $22.4 million. The present value of the lease payments for both the lessor and lessee is $21 million. The first payment was made at the commencement of the lease. What will be the amount Corinth will record as a net residual asset (before adding deferred gross profit) at the commencement of the lease? Why?
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