On January 1, 2013, Carey, Inc., entered into a noncancelable lease agreement, agreeing to pay $3,398 at the end of each year for 4 years to acquire a new computer system having a market value of $9,901. The expected useful life of the computer system is also 4 years, and the computer will be depreciated on a straight-line basis with no salvage value. The interest rate used by the lessor to determine the annual payments was 14%. Under the terms of the lease, Carey, Inc., has an option to purchase the computer for $1 on January 1, 2017.

Required:

a.	Carey, Inc., should account for this lease as a capital lease rather than an operating lease.

___________Operating lease

___________Capital lease