Koby Co. entered into a capital lease with a vendor for equipment on January 2 for 7 years.
The equipment has no guaranteed residual value. The lease required Koby to pay $500,000
annually on January 2, beginning with the current year. The present value of an annuity due
for seven years was 5.35 at the inception of the lease. What amount should Koby capitalize
as leased equipment?