Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. The title of the asset does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has a fair value at lease inception of $85,000 and an expected economic life of 15 years. The lease is non-cancelable.

Payment No.	Cash	Effective Interest	Decrease in Balance	Outstanding Balance
				63,282
1	10,000	---0---	10,000	53,282
2	10,000	6,394	3,606	49,676
3	10,000	5,961	4,039	45,638
4	10,000	5,477	4,523	41,114
5	10,000	4,934	5,066	36,048
6	10,000	4,326	5,674	30,373
7	10,000	3,645	6,355	24,018
8	10,000	2,882	7,118	16,901
9	10,000	?	?	?
10	10,000	?	?	?

What is the total expense that the lessee will recognize during the first 12-month of the lease?

$6,394

$10,000

$12,722

$0

None of above