Intermed Accg II

Multiple Choice Question Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annualpayments of $344,152, with the first payment due at lease inception. The lease does not transferownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and nosalvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which isknown by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is theamount of principal reduction recorded when the second lease payment is made in Year 2? PV Annuity Due PV OrdinaryAnnuity 8%, 4 periods 3.57710 3.31213 10%, 4 periods 3.48685 3.16986 $252,960 $273,199 $344,152 $245,666