On January 1, 2008, Delaney Company (lessee) signs an 8-year noncancelable lease agreement to lease a storage building from Shefield Storage Company (lessor). The following information about the lease and the storage building is provided:

1. The agreement requires equal rental payments of $68,622 beginning on December 31, 2008 with a residual value of $100,000 guaranteed by the lessee at the lease end.

2. The payments provide Shefield Storage with a 9% implicit interest rate which is also known to Delaney. Delaneys incremental borrowing rate is 12% per year.

3. The fair value of storage building on January 1, 2008 is $430,000. The cost of the building to Shefield Storage is $400,000. The building has an expected economic life of 12 years with zero salvage value. Use the straight-line method for depreciation.

4. Collectibility of the lease payments is reasonably predictable and there are no important uncertainties surrounding the amount of costs yet to be incurred by Piper Corp.

Required:

Based on this information answer the following questions in the spaces provided. Please show all computations and round amounts to the nearest dollar.

1. (5 points) What kind of lease is it for Delaney Co.? Why?