Superbyte Corporation Sells Photographic Equipment

Multiple Choice

Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture the equipment was $12 million. The lease agreement between SuperByte and Laguna Madre had the follow terms:
1) The lease is noncancellable.
2) The lease has no residual value or bargain purchase option.
3) The lease term is 8 years; payments are made semiannually.
4) Depreciation is recorded each December 31 using the straight-line approach.
5) The economic life of the equipment is 8 years.
6) The lessee's incremental borrowing rate and the implicit interest rate are both 12% annually.
7) The lease payments are $1,493,617 semiannually. The first payment is due at the inception of the lease; subsequent payments are made every July 1 and January 1.
8) The fair value of the equipment at the inception of the lease is $16,000,000.
Superbyte Corporation would account for this lease as ________.

A) a capital lease
B) a direct-finance lease
C) an operating lease
D) a sales-type lease