Grand Hotel Inc. operates hotels in Northeast region of the U.S. It has a two-year contract with Verizon to provide cable and internet to all of its hotel properties. At the commencement of the contract, Verizon placed a brand new cable box in each room of its hotels, and brand new internet routers on each floor. An average useful life of a cable box and a router is five years. Verizon will replace free of charge any malfunctioned cable box and internet router. However, if cable box and router should be damaged while in possession of Grand Hotel, Verizon will charge Grand Hotel for the replacement. In addition to a fixed monthly fee for cable and internet accessibility services, Verizon charges a fixed monthly fee for each cable box, but it does not charge a fee for internet routers.

Discuss whether Grand Hotels contract with Verizon has lease component(s). If yes, identify:

• leased asset(s)
• balance sheet effects and how to measure these effects
• type of lease and supporting justification