On January 1, 2020, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Marlene Corporation adheres to IFRS and Dietrich adheres to ASPE.The following data relate to the agreement:

1.The term of the non-cancellable lease is three years with no renewal option. Payments of $ 271,622 are due on December 31 of each year.

2.The fair value of the machine on January 1, 2020, is $ 700,000. The machine has a total economic life of 6 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.

3.Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich.

Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful.

a. How should Marlene (lessee) classify this lease?Discuss.

b. How should Dietrich (lessor) classify this lease?Discuss.