Baden Corp. entered into a lease agreement for 100 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease except there is a bargain purchase option. After the 5- year lease term, the corporation can purchase each copier for $1.000, when the anticipated fair value is $2.500.

Jerry Suffolk, the financial vp thinks the financial statement must recognize the lease agreement as a finance lease because of the bargain purchase option. The controller, Diane Buchanan, disagrees. "Although, I don't know much about the copiers themselves, there is a way to avoid recording the lease liability. "She argues that the corporation might claim that copier technology advances rapidly and that by the end of lease term, the machines will most likely not be worth the $1000 bargain price.

What ethical issue is at stake?

Should the controller's argument be accepted if she does not really know much about copier technology? Would it make a difference if the controller were knowledgeable about the rate of change in copier technology?

What should Suffolk do?

Please provide all the calculations

Do not assume that the reader is familiar with the subject areas that you are writing about. Therefore, definitions, assumptions, facts, and analyses should be presented.

Three questions need supporting calculations to validate your answers. Kindly show your calculations.