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Question(s) / Instruction(s):

"Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, with two renewal options of one year each, for equipment having a estimated useful life of 8 years. Lessee's incremental borrowing rate is 10%. Lessee uses the straight-line method to depreciate its assets. The lease contains the following provisions: 1. Rental payments of $8,000 for property taxes, payable at the beginning of each six-month period. 2. A termination penalty assuring renewal of the lease for a period of two years after expiration of the initial lease term. 3. An option allowing the lessor to extend the lease one year beyond the last renewal exercised by the lessee. 4. A guarantee by lessee that lessor will realize $40,000 from selling the asset at the expiration of the lease. However the actual residual value is $28,000. *What should be considered the lease term?

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