On December 31, 2013, Perry Corporation Leased equipment to Admiral Company for a five-year period. The annual lease payment, excluding executory costs is $42,000.
The interest rate for this lease is 11% The payments are due on December 31 of each year. The first payment was made on December 31, 2013.
The normal cash price for this type of equipment is $140,000 while the cost to Perry was $109,000. For the year ended December 31, 2013, by what amount will Perry's pretax earnings increase from this lease?
Please show how you determined your answer.