Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture the equipment was $12 million.

The lease agreement between SuperByte and Laguna Madre had the follow terms:
1. The lease is noncancellable.
2. The lease has no residual value or bargain purchase option.
3. The lease term is 8 years; payments are made semiannually.
4. Depreciation is recorded each December 31 using the straight-line approach.
5. The economic life of the equipment is 8 years.
6. The lessee’s incremental borrowing rate and the implicit interest rate are both 12% annually.
7. The lease payments are $1,493,617 semiannually. The first payment is due at the inception of the lease; subsequent payments are made every July 1 and January 1.
8. The fair value of the equipment at the inception of the lease is $16,000,000.
Refer to Superbyte Corporation.
Superbyte Corporation would account for this lease as ________.

A) a capital lease
B) a direct financing lease
C) an operating lease
D) a sales-type lease

Answer: D