Question: Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $12 million.

Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $12 million.

This noncancelable lease had the following terms:

Lease payments: $2,466,754 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028.

Lease term: five years (10 semiannual payments).

No residual value; no purchase option.

Economic life of equipment: five years.

Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually.

Fair value of the computers on January 1, 2024: $20 million.

Lone Star Company would account for this as a(n):

Multiple Choice

a. finance lease.

b. sales type lease without selling profit.

c. sales type lease with selling profit.

d. operating lease.

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