On January 1, 2020, Regal Air Inc. enters into an eight year, non-cancellable lease agreement to lease an airplane to Atlantic Airline, with payments required at the end of each year. Both Regal Air and Atlantic Airlines are public companies. The following information relates to this agreement:

a.Atlantic Airline has the option to purchase the airplane for $ 7,000,000 at the end of the lease, at which time the airplane's fair value is expected to be $ 12,000,000.

b.The airplane cost Regal Air $ 30,000,000. It has an estimated useful life of fifteen years, and a residual value of zero at the end of that time (due to technological obsolescence).

c.Atlantic will pay all executory costs related to the leased airplane.

d.Annual year-end lease payments of $ 4,562,337 will allow Regal Air to earn an 8% return on its investment.