Question: Piper Corporation recently signed a lease for equipment from Photon
Piper Corporation recently signed a lease for equipment from Photon Inc. The lease term is five years and requires equal rental payments of $32,000 at the beginning of each year. The equipment has a fair value at the lease’s inception of $140,000, an estimated useful life of eight years, and no residual value. Piper pays all executory costs directly to third parties. Photon set the annual rental to earn a rate of return of 8%, and this fact is known to Piper. The lease does not transfer title or contain a bargain purchase option. How should Piper classify this lease using private enterprise GAAP?
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