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Problem 21-06 (Part Level Submission) Novak Leasing Company agrees to lease equipment to Splish Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $575,000, and the fair value of the asset on January 1, 2020, is $755,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Splish estimates that the expected residual value at the end of the lease term will be 50,000. Splish amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Novak desires a 9% rate of return on its investments. Splish's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables. (a) Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. This is a finance lease for Splish. This is a sales-type lease for Novak. SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT Attempts: 3 of 5 used (b) Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.) Annual rental payment SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT

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