King Cones leased ice cream-making equipment from Ace Leasing. Ace earns interest under such arrangements at a 8% annual rate. The lease term is nine months with monthly payments of $12,000 due at the end of each month. King Cones elected the short-term lease option.
Respond to the question with the presumption that the guidance provided by the proposed Accounting Standards Update is being applied. What is the effect of the lease on King Cones' earnings during the eight-month term (ignore taxes)?
Decrease or increase by earning?
By what amount?