Technoid Inc

Multiple Choice

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018. The manufacturing cost of the computers was $12 million.

This noncancelable lease had the following terms:

• Lease payments: $2,466,754 semiannually; first payment at January 1, 2018;
remaining payments at June 30 and December 31 each year through June 30, 2022.
• 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 at January 1, 2018: $20 million.

-Technoid would account for this as:

A) A finance lease.
B) A sales-type lease without selling profit.
C) A sales-type lease with selling profit.
D) An operating lease.