Ludwig Corporation leases a machine to Kluge Corporation under a three-year lease agreement determined to be a finance/sales-type lease. At the inception of the lease, What should be selected?
1) The fair value of the machine is equal to the present value of the minimum lease payments.
2) The fair value of the machine is less than the present value of the minimum lease payments.
3) The fair value of the machine is greater than the present value of the minimum lease payments.
4) The fair value of the machine is not relevant in determining the lease classification.