Watermill Pools enters into a 5-year agreement to lease equipment from Southampton Pool Supply. The equipment has a useful life of 6 years. Which of the following is true?

1-The lease should be treated as an operating lease as the term of the lease is less than 100% of the economic life of the equipment.

2-The lease should be treated as an operating lease as the term of the lease is greater than 75% of the economic life of the equipment.

3-The lease should be treated as a capital lease as the term of the lease is less than 100% of the economic life of the equipment.

4-The lease should be treated as a capital lease as the term of the lease is greater than 75% of the economic life of the equipment.