The Baltimore, Inc. entered into a five-year lease with the Waugh Chapel Company on January 1, 2016. Baltimore, the lessor, will require that five equal annual payments of $25,000 be made at the beginning of each year. The first payment will be made on January 1, 2016. The lease contains a bargain purchase option price of $12,000, which the lessee may exercise on December 31, 2020. The lessee pays all executory costs. The cost of the leased property and its normal selling price are $95,000 and $118,236, respectively. Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease. Present value factors for a 7%
Present value of $1 for n = 1 0.934579
Present value of $1 for n = 5 0.712986
Present value of an ordinary annuity for n = 5 4.100197
Present value of an annuity due for n = 5 4.387211
?Refer to Exhibit 20-5. If Baltimore requires a 7% annual return, what is the correct amount of interest revenue to be recognized by Baltimore for 2016 (round the answer to the nearest dollar)?