On January 1, 2022, Durant Corporation agrees to lease equipment to Irving Corporation. The term of the lease is 5 years, and the equipment has an estimated economic life of 7 years. Durant's cost of the machinery is $475,000 and the machinery's fair value is $600,000. The lease has no renewal or purchase options, and requires 5 annual rental payments, beginning January 1, 2022. The machinery is not of a specialized nature, and reverts back to Durant at the end of the lease. Durant expects the asset to have a residual value of $55,000 at the end of the lease. The residual value is not guaranteed. Durant's implicit rate (known to Irving) is 10%. Irving's incremental borrowing rate is 5%. Collectibility of the lease payments is probable. Required a. Calculate the amount of the annual rental payment required. b. What type of lease is this to Irving? To Durant? Explain and show calculations. c. Compute the value of the lease liability and prepare all of Irving's required journal entries for 2022.

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.