On December 31, 2020, Lessee Inc. leased from Lessor Inc., machinery with a fair value of $ 800,000. The contract is for 10 years, non-cancellable and establishes annual payments of $ 138,567 starting on December 31, 2020. The useful life of the asset is 10 years. At the end of the contract term, the asset will return to the lessor. The lessee's incremental borrowing rate is 15%. The lessee was unable to determine the 12% implicit interest rate because the residual value of the asset is not mentioned in the contract. In the Statement of Financial Position as of December 31, 2020, Lessee Inc. must report a net lease liability for

Select one:

a. $ 738,321

b. $ 876,888

c. $ 661,432

d. $ 800,000

In the situation described in the previous question, how should Lease Inc. classify this lease?

Select one: a. Financial b. Direct Financing c. Operational d. Sale Type