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Use the following information for questions 18 and 19.

Davies Co. leased a machine to Callaghan Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Davies gets to recognize all the profits, and at the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances:

Leased equipment under capital lease	$250,000
Less accumulated depreciationcapital lease	240,000
	$ 10,000
Interest payable	$ 950
Obligations under capital leases	9,050
	$10,000

18. If, at the end of the lease, the fair market value of the residual value is $5,500, what gain or loss should Davies record?

$5,500 gain.

$4,500 loss.

$4,050 loss.

$4,450 gain.

19. If, at the end of the lease, the fair market value of the residual value is $10,500, what gain or loss should Davies record?

$ 500 gain.

$ 500 loss.

$3,050 loss.

$1,450 gain.