Response to the following questions:
1. Why are compound interest concepts appropriate and applicable in accounting for a direct financing lease?
2. The Owens Company leased equipment for four years at $50,000 a month, with an option to renew the lease for six years at $2,000 per month or to purchase the equipment for $25,000 (a price considerably less than the expected fair value) after the initial lease term of four years. How does Owens Company record this transaction?