On January 1, 2021, Fry Inc. leased equipment to Pot Ltd. with an eight-year lease, with payments of $52,000 to be paid every January 1, starting January 1, 2021. The fair value of the equipment is $300,000. The equipment is expected to have a residual value of $20,000 at the end of the lease term. The residual value is NOT blow guaranteed by Pot Ltd. At the end of the lease term, Pot Ltd. can purchase the batscolle equipment for $10,000. hitong leitin The lease has an implicit rate of 10% (known by both parties), and Pot Ltd.'s 000 ora incremental borrowing rate is 8%. The equipment has an expected useful life of 12 years with a residual value of $5,000 at the end of its useful life. Both companies an report under IFRS, have December 31 year ends, and use straight-line depreciation. Required: a) Explain whether the lease is a finance lease or an operating lease for Pot Ltd. ras (1 mark)
