On January 1, 20X1, Lessee Corporation entered into a ten-year lease agreement. The lease terms required annual year-end payments of $160,000. The lease agreement does not contain either a bargain purchase option or a transfer of title. The fair value of the equipment at the inception of the lease was $1,100,000; estimated life of the leased assets was fourteen years. Lessee Corporation's incremental borrowing rate was 10%; the implicit rate of interest, known to the lessee, was 12%. Applicable time value of money values are as follows:

Ten-year, 10% ordinary annuity

6.144

Ten-year, 12% ordinary annuity

5.650

Ten-year, 10% annuity due

6.759

Ten-year, 12% annuity due

6.328

Lessee Corporation should classify this lease agreement as a(n):

Multiple Choice

• Operating lease
• Financing lease
• Sales-type lease
• Short-term lease