$CT20\mathrm{.}6(LO4)(Ethics)(Lease$ Capitalization, Bargain Purchase Option$)$ Baden Corporation entered into a lease agreement for $100$ photocopy machines for its corporate headquarters. The lease agreement qualifies $asan$ operating lease except there $is$ a bargain purchase option. After the $5-$year lease term, the corporation can purchase each copier for $$1,000,$ when the anticipated fair value $is$ $$2,500.$

Jerry Suffolk, the financial vice president, thinks the financial statements must recognize the lease agreement $as$ a finance lease because $of$ the bargain purchase option. The controller, Diane Buchanan, disagrees: $Although$ I don$t$ know much about the copiers themselves, there $is$ a way $to$ avoid recording the lease liability.$$ She argues that the corporation might claim that copier technology advances rapidly and that $by$ the end $of$ the lease term, the machines will most likely not $be$ worth the $$1,000$ bargain price.

Instructions

$1.$ What ethical issue $isat$ stake?

$2.$ Should the controller$s$ argument $be$ accepted $if$ she does not really know much about copier technology? Would $it$ make a difference $if$ the controller were knowledgeable about the rate $of$ change $in$ copier technology?

$3.$ What should Suffolk $do?$