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What is the amount of the rental payments

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Question - Ayayai Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,604 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 $9,300, a book value of $7,300, and Ayayai expects a residual value of $6,800 at the end of the lease term. Ayayai set the lease payments with the intent of earning a 5% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 7%. 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. What is the amount of the rental payments used in the lease agreement?

Reference no: EM133126069

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