Ownership reverts to the lessor.
The machine has an expected useful life of 3 years and no residual value. Collectibility of the leae pmts is reasonably predictable. MSC is currently depreciating its other equipment using the straight line method over 5 years. The present value of the BPO or the residual value would reduce the FMV of leased equipment. The This makes sense because these amounts reduce the portion of the equipment value which must be recovered solely through lease payments.