Karla Salons Leased Equipment from Smith Co

Karla Salons leased equipment from Smith Co. on July 1, 2018, in a finance lease. The present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due each year beginning July 1, 2018. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $80,000.
- The total decrease in earnings (pretax) in Karla's December 31, 2018, income statement would be (ignore taxes) :

A) $5,000.
B) $7,400.
C) $8,400.
D) $9,000.

Correct Answer:

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