On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 8 years; the economic life of the asset is 12 years. The cost of the equipment is $36,000; its fair value is $61,000. Lessors implicit rate is 7%; Lessees incremental borrowing rate is 7%. Lease payments of $9000 are due at the beginning of each year (PV $57,510). At the end of the lease term, the asset is expected to have a residual value of $6000 (PV $3492), none of which is guaranteed by Lessee.

a. This is a finance lease for Lessee with a liability of $61,000.

b. This is an operating lease for Lessee with a liability of $61,000.

c. This is a finance lease for Lessee with a liability of $61,000 the present value of the $6000.

d. This is an operating lease for Lessee with a liability of $61,000 the present value of the $6000.