Case 13-12 Lease Classification by Lessee - Copy Machine with Lease and Nonlease Components Biltmore Company leases a copier from Vanderbilt Inc. The following table summarizes information about the lease and the leased asset. . . . Lease term three years, no renewal option - Economic life of the copier - five years Purchase option - None Annual lease payments $500, which includes lessor - maintenance for the term of the lease Vanderbilt Inc normally leases the same copier for $475 per year and offers a maintenance contract for $75 per year Payment date - Annually on January 1 Biltmore Company's incremental borrowing rate - 5.5% The rate Vanderbilt Inc charges Biltmore Company in the lease is not readily determinable by Biltmore Company Title to the copier remains with Vanderbilt Inc upon lease expiration. The fair value of the copier is $2,000; Bilt- more Company does not guarantee the residual value of the copier at the end of the lease term Biltmore Company pays $100 in legal fees related to the negotiation of the lease, which are treated as initial direct costs Vanderbilt Inc does not provide any incentives Biltmore Company has not made an accounting policy election to not separate the lease and nonlease compo- nents for this class of asset Required: a. How should Biltmore Company classify the lease? b. How would Biltmore Company measure and record this lease?