Project 2. Alcenon Corporation leases the majority of the assets that it uses in operations.

Alcenon prefers operating leases (versus capital leases) in order to keep the lease liability off its Balance Sheet and maintain a low debt ratio.

Alcenon is negotiating a 10-year lease on an asset with an expected useful life of 15 years.

The lease requires Alcenon to make 10 annual lease payments of $20,000 each, with the first payment due at the beginning of the lease term. The leased asset has a market value of

$135,180. The lease agreement specifies no transfer of title to the lessee and includes no bargain purchase option.

Write a report for Alcenon’s management to explain what conditions must be present for Alcenon to be able to account for this lease as an operating lease.