A semi-truck is acquired with a five-year non-cancelable lease on January 1, 2022 under the following terms.

1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.
2. The fair value of the semi-truck is $100,000.
3. The lease is nonrenewable and the semi-truck goes back to original firm at the end of the lease term.
4. The semi-truck has a six-year economic life.
5. The semi-truck has a two-year warranty that is handled directly with the manufacturer.

With which one of the following entries will Hatfield prepare to record the payment on December 31, 2022?

• DR Finance lease liability 16,379.74 DR Interest expense 10,000.00 CR Cash 26,379.74

• DR Finance lease liability 26,379.74 CR Cash 26,379.74

• DR Interest expense 26,379.74 CR Cash 26,379.74

• DR Finance lease liability 10,000.00 DR Interest expense 16,379.74 CR Cash 26,379.74