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How much is the gross investment in the lease on january

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Question - On January 1, 20x1, POLTROON Co. leased a piece of equipment to COWARD, Inc. Information on the lease is as follows:

Cost of equipment 1,200,000

Useful life of equipment 5 years

Lease term 4 years

Annual rent payable at the end of each year 400,000

Interest rate implicit in the lease 10%

Residual value 80,000

The equipment will revert back to POLTROON at the end of the lease term. The lease is classified as sales type lease.

Required - How much is the gross investment in the lease on January 1, 20x1 assuming the residual value is guaranteed?

Reference no: EM133144527

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