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What is the annual rental over the lease term

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Reference no: EM132727478

Problem - Oceanic Company is engaged in leasing equipment. Such an equipment was delivered to a lessee at the beginning of the current year under a direct financing lease with the following provisions.

Cost of equipment 4,361,200

Unguaranteed residual value 200,000

Useful Life and lease term 8 years

Implicit interest rate 10%

Present value of an ordinary annuity of 1 for 8 years at 10% 5.335

Present value of 1 for 8 years at 10% 0.466

The annual rental is payable at the end of each year. The equipment will revert to the lessor upon the lease expiration.

Q1. What is the net investment in the lease to be recovered from rental?

Q2. What is the annual rental over the lease term?

Reference no: EM132727478

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