On January 1, 2015, Lorry Manufacturing Company purchased equipment from Wales Inc. There was no established market price for the equipment which has an 8 year life and no salvage value. Lorry gave Wales a $105,000 zero-interest-bearing note payable in 3 equal annual installments of $35,000, with the first payment due December 31, 2015. The prevailing rate of interest for a note of this type is 8%. The present value of the note at 8% was $90,199. Assuming that Lorry uses the straight-line method of depreciation, what amounts will be reported in the company's 2015 income statement for interest expense and depreciation expense for the note and equipment?

Select one:

a.$7,216; $11,275

b.$1,750; $8,750

c.$7,216; $30,066

d.$8,400; $13,125