SHOW CALCULATIONS

On January 1, 2020, Damon Co. leased a machine to Clooney Co. for 10 years, with $20,000 payments due at the beginning of each year effective at the inception of the lease. The machine cost Damon $110,000. The lease is appropriately accounted for as a sales-type lease by Damon. The present value of the 10 rent payments over the lease term discounted appropriately at 10% was $135,200. How much interest income should Damon record from the lease for the year ended December 31, 2020?

a. $11,520.

b. $13,520.

c. $14,040.

d. $11,000.