Mizuno Corp. (JPN) leases telecommunication equipment. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of ¥3,100,000 at the beginning of each year. The equipment has a fair value at the inception of the lease of ¥13,800,000, an estimated useful life of 8 years, and no residual value. Mizuno pays all executory costs directly to third parties. Photon set the annual rental to earn a rate of return of 10%, and this fact is known to Mizuno. The lease does not transfer title or contain a bargain-purchase option. How should Mizuno classify this lease?
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