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Coronado Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning...

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Accounting

Coronado Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31,2025. Annual rental
payments of $48,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting
the payment schedule is 4%; Coronado's incremental borrowing rate is 6%. Coronado is unaware of the rate being used by the lessor.
At the end of the lease, Coronado has the option to buy the equipment for $5,000, considerably below its estimated fair value at that
time. The equipment has an estimated useful life of 7 years, with no salvage value. Coronado uses the straight-line method of
depreciation on similar owned equipment.
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