Thomas entered a four-year sales-type lease with a lessee. The lease is for equipment with a fair value of $40,000, a cost of $34,000, and a residual value of $7,000. The lease has an implicit rate of 6%. The present value factor of a single sum for four periods at 6% is .79209, and the present value factor of an ordinary annuity for four periods at 6% is 3.46511. What amount of gross profit will Thomas report if the lease has a(n)

Please answer the multiple choice question (a or b) for the guaranteed and unguaranteed residual value.

Guaranteed Residual Value Unguaranteed Residual Value

a. $6,000 $6,000

b. $40,000 $34,455