Thompson Company leased equipment to XYZ Company for a 9-year period. The first payment of $75,000 was made immediately. The lease is a sales-type lease for Thompson Company and a finance lease for XYZ. The fair value of the equipment is $590,550; the cost is $460,000. The interest rate for Thompson Company is 3.5%. The present value of the lease payments for XYZ using an interest rate of 4% is $579,975. The economic life of the equipment is 10 years.

What is the interest expense and amortization expense at the end of the year for XYZ?

1. $20,622 and $64,442
2. $20,622 and $57,997
3. $20,669 and $64,442
4. $20,669 and $57,997

1. What is the profit on the sale that Thompson Company should record at the beginning of the year and the interest income at the end of the year?

1. $130,550 and $18,044
2. $130,550 and $20,669
3. $119,975 and $18,044
4. $119,975 and $20,669