Problem:
On January 1, year 1, Jang Co. signed a 7-year lease for equipment having a 10-year economic life. The present value of the monthly lease payments equals 80% of the equipments's fair value. The lease agreement provides for neither a transfer of title to Jang nor a bargain purchase option. In its year 1 income statements, Jang should report
- Rent expense equal to tye year 1 lease payments.
- Rent expense equal to the year 1 lease payments minus interest.
- Lease amortization equal to one-tenth of the equipment's fair value.
- Lease amortization equal to one-seventh of 80% of the equipment's fair value.
Note: Please show the work not just the answer.