On January 1, 2020, Tonic Corp., the lessee, enters into an agreement with Plough Rentalz Inc., to lease a machine from them. Both corporations adhere 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 $ 543,244 are due on December 31 of each year.

2. The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.

3. Metal depreciates all its machinery on a straight-line basis.

4. Metals incremental borrowing rate is 10%. Metal does not have knowledge of the 8% implicit rate used by Plough.

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

From Tonic's viewpoint, what type of lease is this?

Select one:

a.

finance lease.

b.

manufacturer or dealer lease.

c.

operating lease.

d.

other finance lease.

e.

Buy back lease.