22. Santos Corp. manufactures equipment. On January 1, 2020, Santos Corp. leases equipment to Bancroft, Inc. under a six-year noncancelable lease agreement. The following information about the lease and the equipment is provided:

1. Equal annual payments that are due on December 31 each year provide Roland Corp. with an 8% return on net investment.

2. Title to the equipment passes to Bancroft, Inc. at the end of the lease.

3. The fair value of the equipment equals the cost $600,000. The equipment has an expected useful life of ten years and no residual value at the end of 10 years.

4. Collectability of the lease payments is reasonably predictable and there are no important uncertainties surrounding the amount of costs yet to be incurred by Santos.

Instructions

1. What type of lease is this for Santos Corp.? Discuss.