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Baden corporation entered into a lease agreement for 10 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease in all
Baden corporation entered into a lease agreement for 10 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease in all terms except there is a bargain purchase Option. After the 5year lease term the corporation can purchase each copier for $1,000, when the anticipated fair value is $2,500. Jerry Suffolk, the financial vice president, thinks the financial statements must recognize the lease agreement as a capital 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 amd that by the end of the lease term the machines will most likely not be worth the $1,000 bargain price. (A) what ethical isshe is at stake? (B) 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 pace of change in copier technology? (C) what should Suffolk do
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