On January 1, 2008, Overseas Leasing Inc. (the lessor) purchased five used oil tankers from Seven
Seas Shipping Company at a price of \($99,817,750.\) Overseas immediately leased the oil tankers to
Pacific Ocean Oil Company (the lessee) on the same date. The lease calls for five annual payments
of \($25,000,000\) to be made at each year-end. The tankers have a remaining useful life of five years
with no salvage value, and the lease does not require the lessee to guarantee any residual value for
the tankers. The lessor has structured the lease to earn a rate of return of 8.0%.
Required:
Prepare a schedule like the one appearing in Exhibit 12.9 of the text. This schedule should contain
the year-to-year income statement and balance sheet differences that would arise depending
on whether this lease is accounted for as a direct financing lease or as an operating lease.