Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life with $10,000 guaranteed residual value. The rate implicit in the lease (which is known by Pisa, Inc.) is 8%.

a. Is it a financing lease or operating lease? Explain why. (You do not need to discuss all five tests).

b. What are the main differences between a finance lease and operating lease?

c. How much would Tower Company, the lessor, record as an initial receivable? (Hint: think PV testing amount)