Sandhill, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $424152, 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. Sandhill, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Sandhill, 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?

PV Annuity Due

PV Ordinary Annuity

8%, 4 periods3.57710

3.31213

10%, 4 periods3.48685

3.16987