On December 31 of the Current Year,Johnson Corporation Leased Equipment

question 329

Multiple Choice

On December 31 of the current year,Johnson Corporation leased equipment to Kennedy Company for a five-year period.The annual lease payment is $40,585; the discount rate for this lease is 8%.Lease payments are due on December 31 of each year,and the first payment was made at the inception of the lease.The normal cash price for this type of equipment is $175,000; the cost to Johnson was $150,000.The expected life of the equipment is five years.For December 31 of the current year,what will be the increase to Johnson's pretax earnings due to this lease?

• A)$10,753
• B)$29,830
• C)$35,000
• D)$40,583

---

Definitions:

Asset Turnover Ratio

A financial metric indicating how efficiently a company utilizes its assets to generate sales revenue.

Fiscal Period

A defined time period used for financial reporting and budgeting, typically a year, quarter, or month.

Accounts Receivable

Amounts owed to a company by customers for goods or services that have been delivered or used but not yet paid for.

Accumulated Depreciation-Building

The total amount of depreciation expenses that have been charged against a building asset over its useful life, reducing its book value.