In January 2005, Hopper Corp. signed a capital lease for equipment with a term of twenty years. In 2007, Hopper negotiated a modification to a capital lease that resulted in the lease being reclassified as an operating lease. Hopper calculated the company had a gain of $8,000 on the lease modification. Hopper retains all rights to use the property during the remainder of the lease term. How should Hopper account for the lease modification?
- Recognize an $8,000 gain from lease modification during 2007.
- Defer the gain and recognize it over the life of the operating lease.
- Recognize the $8,000 gain as an extraordinary item in 2007.
- Recognize the $8,000 gain as a discontinued operation in 2007.