Tire Corporation leased a machine to Rims Company on January $1,20$X$9,$ for a $5-$year lease. The machine has an economic life of $10$ years, a residual value at the

end of lease term of $$50,000,$ and a residual value at the end of economic life of zero. The lease contains a purchase option that allows Rims to purchase the

leased machine at the end of the lease term for $$25,000.$ Equal lease payments of $$15,000$ are made on each January $1,$ with the first payment made on January $1,$

$20$X$9.$The applicable interest rate to both the lessee and the lessor is $12\%.$ For the year ended December $31,209,$ Rims should report interest and depreciation

expense as:

Multiple Choice

Interest Expense: $$3,585$ Depreciation Expense: $$15,950$

Interest Expense: $$7,170$ Depreciation Expense: $$7,475$

Interest Expense: $$7,475$ Depreciation Expense: $$7,770$