On January 1, 2003, Belkor entered into a 10-year capital lease for equipment. On December 1, 2006, Belkor terminates the capital lease and incurs a $20,000 loss. How should Belkor recognize the lease termination on their financial statements?

  1. Recognize a $20,000 loss in 2006 as a discontinued operation.
  2. Recognize a $20,000 loss in 2006 as an extraordinary item.
  3. Recognize a $20,000 loss from continuing operations in 2006.
  4. Defer recognition of the loss and recognize pro rata over the life of the lease term.