What is the proper classification of the lease to nace

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Question - Nace Manufacturing Company leased a piece of nonspecialized equipment for use in its operations from Righteous Leasing on January 1, 2023. The 10 year lease requires lease payments of $4,000, beginning on January 1, 2023, and at each December 31 thereafter through 2031. The equipment is estimated to have a 10 year life, is depreciated on the straight-line basis and will have no residual value at the end of the lease term. Nace's incremental borrowing rate is 11%. Initial direct costs of $1,000 are incurred by the lessee on January 1, 2023. Righteous Leasing acquired the asset just prior to the lease term at a cost of $27,000. Collection of all lease payments is reasonably assured. What is the proper classification of the lease to Nace?

A) Sales-type lease

B) Finance lease

C) Operating lease

D) Either A or B

Reference no: EM133182800

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