Cott, Inc. prepared an interest amortization table for a five-year lease payable with a bargain purchase option of $2,000, exercisable at the end of the lease. At the end of the five years, the balance in the leases payable column of the spreadsheet was zero. Cott has asked Grant, CPA, to review the spreadsheet to determine the error. Only one error was made on the spreadsheet. Which of the following statements represents the best explanation for this error?

  1. The beginning present value of the lease did not include the present value of the bargain purchase option.
  2. Cott subtracted the annual interest amount from the lease payable balance instead of adding it.
  3. The present value of the bargain purchase option was subtracted from the present value of the annual payments.
  4. Cott discounted the annual payments as an ordinary annuity, when the payments actually occurred at the beginning of each period.