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Novak Corporation leased equipment to Windsor, Inc. on January 1, 2020. The lease agreement called...

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Accounting

Novak Corporation leased equipment to Windsor, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $878 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 8 years, a fair value of $8,100, a book value of $6,100, and Novak expects a residual value of $5,600 at the end of the lease term. Novak set the lease payments with the intent of earning a 4% return, though Windsor is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. 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?

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