On January 1, 20X4, Plantation Restaurant is planning to enter as the lessee into the two lease agreements described below. Each lease is noncancelable, and Plantation does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 of each year.

Lessor Hadaway, Inc. Cutter Electronics Type of property Oven Computer Yearly rental $15,000 $4,000 Lease term 10 years 3 years Economic life 15 years 5 years Purchase option None None Renewal option None None Fair market value at inception of lease $125,000 $10,200 Unguaranteed residual value None $2,000 Lessee's incremental borrowing rate 10% 10% Executory costs paid by Lessee Lessor Annual executory costs $800 $500 PV factor at 10% 6.76 2.74 (of an annuity due)

Plantation Restaurant should treat the lease agreement with Cutter Electronics as a(n):