On January 1, 2004, JCK Co. signed a contract for an eight-year lease of its equipment with a ten-year life. The present value of the sixteen equal semiannual payments in advance equaled 85% of the equipment’s fair value. The contract had no provision for JCK, the lessor, to give up legal ownership of the equipment. Should JCK recognize rent or interest revenue in 2006, and should the revenue recognized in 2006 be the same or smaller than the revenue recognized in 2005?

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2006 revenues recognized

2006 amount recognized compared to 2005

a.

Rent

The same

b.

Rent

Smaller

c.

Interest

The same

d.

Interest

Smaller