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What type of lease is this from alt corporation viewpoint

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Reference no: EM132793042

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:

(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.

(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.

(c) Alt depreciates all machinery it owns on a straight-line basis.

(d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.

(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

problem 1: What type of lease is this from Alt Corporation's viewpoint?

A. Sales-type lease

B. Direct financing lease

C. Operating lease

D. Finance lease

Reference no: EM132793042

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