QRS Company leases out an asset for 4 years to TUV Inc. During the term of the lease, TUV must make a payment of $5,000 each year for using the asset. The rate implicit in the lease is 8%. The lease is classified as a finance lease and both companies use straight line depreciation and zero salvage values to depreciate all fixed assets.

If the asset had cost QRS $14,000, net income in Year 3 would be closest to:

a.713

b.640

c.1353

The answer is a. Can somebody explain this to me?