PROBLEM $1$: Totally Modern, Inc. leased a computer to a law firm, Dewey, Cheatam, and

Howe. on January $2,20$X$1.$ The term of this noncancelable lease is four years. The following

information about the lease is provided:

a$.$ Title to the computer does not pass to the lessee at the end of the lease term. The lease

agreement includes a guaranteed residual value of $$30,000.$

b$.$ The normal selling price of the computer at January $2,20$X$1,$ was $$400,000.$ The cost of the

computer to Totally Modern was $$350,000.$ The computer has an estimated economic life of five

years.

c$.$ Totally Modern desires a rate of return of $10$ percent on its investment.

d$.$ Equal annual lease payments are due at the beginning of each lease year, with the first one

due on January $2,20$X$1,$ when the law firm takes possession of the computer.

Instructions $-$ answer all questions in the space provided.

$1.$ What type of lease is this for the lessor? Discuss and apply all of the leasing criteria.