CA21.5 (LO 4) Ethics (Lease Capitalization, Bargain purchase Option) Baden Corporation 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 vice president, thinks the financial statements 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 the lease term, the machines will most likely not be worth the $1,000 bargain price. Instructions a. What ethical issue 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 rate of change in copier technology? c. What should Suffolk do?Attribute Grade of A Grade of B Grade of C Grade of D Grade of F Accounting Concepts Especially skillful Clear and competent Accurate but limited Limited grasp of Inaccurate use of identification and use of accounting use of accounting accounting concepts accounting concepts analysis of accounting concepts concepts concepts Assertions Fully developed and Developed and Assertions exist but Assertions exist but Lack of assertions, supported assertions supported assertions are not developed or are not developed or development and/or supported adequately supported accurately support Structure Particularly clear Consistent focus and Paragraph flow and Weak paragraph Lack of focus ideas with logical good transitions transitions are structure and illogical transitions throughout adequate transitions Language Languageespecially Free of errors in Minor errors in Fundamental Serious errors in clear and concise with mechanics. Clear mechanics. mechanics errors. mechanics. Lack on flawless mechanics. and concise language Sentences could be Lack of clarity and clarity and concision. more effective concision