Jimma leased equipment from Luke Leasing on December 31, 2026. The lease is a 10-year lease with annual payments of $155,348 due on December 31 of each year and the first payment on December 31, 2026. Fanco knows of Luke's required 10% rate of return. The market value of the 12-year asset being leased is $1,050,000--while costing Luke $800,000. The lease does not mention who maintains title to the asset and there is no purchase option.

Group of answer choices

Both Jimma and Luke will recognize interest expense over the life of the lease.

Jimma will amortize the ROU asset over 12 years.

Luke will depreciate the asset over 12 years.

Luke will recognize profit, in addition to interest revenue on this lease.