Lessee, Inc. (Lessee) is entering into a contract with Landlord, Inc

Lessee, Inc. (Lessee) is entering into a contract with Landlord, Inc. (Landlord) to rend Landlord’s newlyconstructed office building located at 555 Corporate Place, Stamford, CT. The fair value of the leasedbuilding is approximately $5 million at lease inception. The lease term is 20 years, and the estimated lifeof the building is 40 years. Lessee will occupy all 10 floors of the building. At the end of the lease term,Lessee agrees to either renew the lease (at twice the current lease payment price, which is assumed toexceed the fair value of the typical lease rental costs), or Lessee agrees to purchase the building at fairvalue.Monthly, Lessee will be required to pay $10,000 to occupy the building, plus a monthly supplementalrental cost based on Lessee’s sales (1% of sales). From experience Lessee estimates that 1% of its salesshould approximate another $15,000 per month. For simplicity, please ignore discounting for purposesof this example.Prepare a technical memorandum, citing the appropriate authoritative and non-authoritative literatureto address this transaction, and answering the following questions:Should the lease arrangement be classified as a capital or operating lease?How would Lessee record this lease at the inception of the lease?o Would this change under the proposed new leasing standard?