East Co. leased a new machine from North Co. on May 1, 2016, under a lease with the following information:

Lease term 10 years

annual lease payments due at the beginning of each lease year $40,000

remaining useful life of the machine 12 years

implicit interest rate 14%

Present value factor for an annuity due n=10, i=14% 5.95

Present value factor of $1 with terms n=10, i=14% 0.27

East has the option to purchase the machine on May 1, 2023, by paying a bargain price of $5,000.

Question: What type of lease classification is most appropriate for East Co.?

		Finance lease
		Operating lease
		Sales lease back
		Optional lease arrangement