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Karla Salons leased equipment from Smith Co

Accounting

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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.

What amount of interest revenue from the lease should Smith Co. report in its December 31,

2018, income statement?

A) $12,000.

B) $4,000.

C) $3,400.

D) $5,000.