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

Answer: A