On January 1, Year One, Owens buys a large warehouse for $700,000 which it immediately sells to National Financing for $800,000. The warehouse has an expected life of 10 years. Owens immediately signs a contract to lease the warehouse back for its own use. This lease is for 10 years with payments of $120,000 per year. The first payment is made immediately. Assume that these payments were computed using a 10 percent annual interest rate. Which of the following statements is true?

On January 1, Year One, Owens buys a large warehouse for $700,000 which it immediately sells to National Financing for $800,000. The warehouse has an expected life of 10 years. Owens immediately signs a contract to lease the warehouse back for its own use. This lease is for 10 years with payments of $120,000 per year. The first payment is made immediately. Assume that these payments were computed using a 10 percent annual interest rate. Which of the following statements is true?
The $100,000 gain on the original sale must be recognized by Owens immediately.
The $100,000 gain on the original sale will be recorded by Owens as other comprehensive income.
The $100,000 gain on the original sale will be deferred until the end of the lease and then recognized as a gain.
The $100,000 gain on the original sale will be deferred and then written off each year as a reduction in the depreciation expense on the leased warehouse.