Corinth Co. leased nonspecialized equipment to Athens Corporation for an eight-year period, at which timepossession of the equipment will revert back to Corinth. The equipment cost Corinth $16 million and has anexpected useful life of 12 years. Its normal sales price is $22.4 million. The present value of the lease paymentsfor both the lessor and lessee is $20.6 million. The first payment was made at the beginning of the lease. Howshould Corinth classify this lease? Why?

Question

Corinth Co. leased nonspecialized equipment to Athens Corporation for an eight-year period, at which time
possession of the equipment will revert back to Corinth. The equipment cost Corinth $16 million and has an
expected useful life of 12 years. Its normal sales price is $22.4 million. The present value of the lease payments
for both the lessor and lessee is $20.6 million. The first payment was made at the beginning of the lease. How
should Corinth classify this lease? Why?

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