1. Oman Construction Leasing Company SAOG (OCLC), a subsidiary of Muscat Grant Corporation signed a lease agreement with Muscat Mist Infrastructure Company on January 2020. the leasing company will provide drilling equipment according to the following conditions:

- The term of the lease is up to December 2023 (4 years). The lease agreement is non-cancelable and requiring an equal rent payment of 200,000 OMR at the beginning of each year (Annuity due basis).

- Muscat Mist has approval for renewal before maturity for two times. The equipment has a fair value at the time of lease agreement was around 980,000 OMR and economic life of 2 years and no residual value.

- Muscat Mist pays all the executory costs directly to the third party except for the property tax of OMR 1,500 per year which is included as a part of its annual payment to OOLC.

- Muscat Mist incremental borrowing rate is 12% per year.

- Muscat Mist depreciates similar equipment that it owns at a straight ling method depreciation. The targted rate of return expected by the lessor is 10%. the fact is known to the lessee.

REQUIRED:

1. Identify the type of lease both the companies have entered and explain why? (10 marks)

2. Journalize the intial jpurnal entry for the Muscat Mist Infrastructure. (10 marks)

3. Journalize first lease payement -schedule- for Muscat Mist. (10 marks)