Pusan, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $420,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Pusan, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pusan, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2? 8%, 4 periods 10%, 4 periods PV Annuity Due 3.57710 3.48685 PV Ordinary Annuity. 3.31213 3.16986