Assume that Federal Department Stores. Incorporated, is about to sign four separate leases for stores in four separate shopping centers. Each of the stores would cost \(\$ 10\) million if purchased outright and has an economic life of 20 years. Assume that the company currently must pay interest at the rate of 10 percent per year on long-term, secured borrowing. The lease payments are to be made at the end of each year in all four cases.

Based on the information given here, decide whether each of the four leases requires accounting as operating leases or as capital leases. Give your reasoning.

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Lease Annual Lease Term Payment a. Seaview Mall 16 years $1,100,000 b. Normandale Center 16 years 1,215,000 c. Eastbrook Haven d. Palos Parkview 12 years 1,250,000 12 years 1,395,000