Useit, Inc. leased equipment from Home Construction Company under a four-year lease requiring equal annual payments of $87,500, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purcha'se option. The equipment has a 4 year useful life and no salvage value. Useit, Inc.'s incremental borrowing rate is 12% and the rate implicit in the lease (which is known by Useit. Inc.) is 10%. Assuming that this lease is properly classified as a finance lease by Useit, what is the amount of reduction in lease liability recorded when the second lease payment is made in Year 2? 12%, 4 periods 10%, 4 periods o $86,038 o $64,642 o $63,862 O $65,740 PV Annuity Due 3.40183 3.48685 PV Ordinary Annuity 3.03735 3.16986