Eastern Publishers Ltd (EPL) is preparing its December 31, 2020 year-end financial statements. EPL focuses on corporate clients by binding and publishing corporate directories, policy manuals, and other large documents along with publishing short novels and books. This is the first year of operations, and a preliminary estimate of pre-tax net income has been calculated as follows: Revenue $5,278,500 Cost of goods sold 2,216,970 Gross margin 3,061,530 Operating costs Advertising 75,485 Amortization 250,000 Bank charges 15,500 Contracted services 17,500 Lease expense 14,525 Meals and entertainment 78,000 Repairs 25,000 Supplies 57,250 Telephone 12,500 Travel 7,850 Utilities 254,800 Warranty 37,500 Wages and benefits 275,000 Total operating costs 1,120,910 Pre-tax net income $1,940,620 You are working in EPL's accounting department and have been asked to prepare a preliminary estimate of the income tax expense. The current tax expense will not be paid until the next fiscal year. The controller of EPL provides you with the following few notes to help you get started: The depreciation expense relates to a new machine that was acquired on January 1, 2020 for $5 million and has a useful life of 20 years. This machinery is included as class 43 (30%) for CCA purposes. Note that the half-year rule is in effect for tax purposes. EPL provides an assurance-type warranty on its book binding for corporate clients. Corporate clients can return their bound material over a two-year period if the glue breaks down. No books have been returned for rebinding during 2020; however, estimated expenses have been recognized in the current year. The lease expense is related to a 3D printer that is being leased for two years for $34,525 per year. The printer has an expected useful life of five years. There is no provision in the lease that would allow EPL to purchase the printer. If purchased, the printer would cost $150,000. Included in wages and benefits is accrued pension expense of $7,500. During the year the company contributed $5,000 to its Defined Benefit plan (which was set up at the beginning of the year). EPL has an average tax rate of 35% and an incremental borrowing rate of 10%. EPL follows ASPE. Part B: In the table below, indicate the impact on the 3D printer lease classification based on changes in key assumptions Change in Key Assumptions Operating Lease Capital Lease Not Determinable EPL can purchase the lease at the end of the two years for $50,000, which reflects its expected market value. The implicit rate in the lease is 14% and it is known to EPL. The useful life of the printer is two years.