Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual
Question:
Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,720 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $8,200, a book value of $6,200, and Pina expects a residual value of $5,700 at the end of the lease term. Pina set the lease payments with the intent of earning a 8% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
(a) What is the amount of the rental payments used in the lease agreement?
