Pharoah Corporation manufactures specialty equipment with an estimated economic life of $12$ years and leases it to Provincial

Airlines Corp. for a period of $10$ years. Both Pharoah and Provincial Airlines follow ASPE. The equipment's normal selling price is

$$210,482$ and its unguaranteed residual value at the end of the lease term is estimated to be $$13,000.$ Provincial Airlines will make

annual payments of $$22,600$ at the beginning of each year and pay for all maintenance and insurance. Pharoah incurred costs of

$$105,000$ in manufacturing the equipment and $$7,000$ in negotiating and closing the lease. Pharoah has determined that the

collectibility of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest

rate is $8\%.$ Provincial Airlines Corp. has an incremental borrowing rate of $8\%.$

Click here to view the factor table PRESENT VALUE OF $1.$

Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

$($b$)$

What classification will Provincial Airlines give to the lease?

The lease will be classified as