Karla Salons leased equipment from Smith Co. on July 1, 2016, in a Type A lease. The

Question:

Karla Salons leased equipment from Smith Co. on July 1, 2016, in a Type A 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, 2016. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $80,000.
Under the new ASU, what amount of interest revenue from the lease should Smith Co. report in its December 31, 2016, income statement?
A- $12,000.
B- $4,000.
C- $3,400.
D- $5,000.