Frio Inc. leases commercial refrigeration equipment to restaurants and dessert shops. ISCREAM Inc. is an ice cream shop. ISCREAM agrees to lease refrigeration equipment from Frio Inc. on the following terms:

• ISCREAM agrees to lease two 72 cubic foot triple door reach-in upright freezers.
• ISCREAM can use the freezers at its discretion over the lease term. Frio Inc. is prohibited from selling the freezers during the lease term or terminating the lease agreement early.
• The lease term is for 5 years with an option to renew for an additional 5 years. ISCREAM is reasonably likely to renew. The useful life of this equipment is 20 years.
• The lease contract does not require Frio Inc. to make any modifications to the freezers and ISCREAM is prohibited from making any modifications to the freezers that would reduce the usefulness of the freezers to potential subsequent lessees.
• The lessee does not automatically obtain ownership of the equipment at the end of the lease term and the lessee is not given an option to purchase the equipment at the end of the lease term.
• Frio Inc. will deliver and install the freezers at lease commencement, as well as remove the freezers at the end of the lease term.
• Frio Inc. will provide any repairs to the freezers as needed.
• The present value of the sum of the lease payments is $8,000. The fair market value of the freezers is $12,000. The lessee is not required to guarantee the residual value of the freezers or obtain a third-party guarantor for the residual value of the freezers.

Frio Inc., the lessor, classifies the lease as which one of the following?

A. A sales-type lease

B. A direct financing lease

C. A finance lease

D. An operating lease