On December 31, 2018, Perry Corporation Leased Equipment to Admiral

On December 31, 2018, Perry Corporation leased equipment to Admiral Company for a five-year period. The annual lease payment, excluding nonlease components, is $40,000. The interest rate for this lease is 10%. The payments are due on December 31 of each year. The first payment was made on December 31, 2018. The normal cash price for this type of equipment is $125,000 while the cost to Perry was $105,000. For the year ended December 31, 2018, by what amount will Perry's earnings increase due to this lease (ignore taxes) ?

A) $20,000.
B) $24,000.
C) $28,500.
D) $0.

Correct Answer:

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