On 1st July 201x, Large Mart leases a company car for the service department of the new store (called the Nerd Herd). The duration of the lease is 6 years, and the car has an expected useful life of 8 years. The lease contract requires Large Mart to pay $3,000 at the time the lease is signed. This payment is made via a bank transfer. A further $9,000 must be paid (also via bank transfer) on 30th June of each year during the lease period. The lease contract states that Large Mart cannot cancel the lease once the contract is signed. At the end of the lease period, Large Mart will be able to retain the car without having to pay any additional amount. The interest rate in the lease is 12%. Large Mart decided to enter into the lease agreement instead of purchasing the car because the purchase price would have been $40,500 and Large Mart did not have sufficient cash resources to make such a purchase at that time.

Question 6) Determine the lessor will have to account for the outlined car lease as an operating lease or a finance lease, AND provide a detailed explanation for your decision (2.5 marks).