Karla Salons leased equipment from Smith Co. on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 12% was $79,100. Ten annual lease payments of $12,500 are due each year beginning July 1, 2021. Smith Co. had constructed the equipment recently for $69,500, and its retail fair value was $79,100. The total decrease in earnings (pretax) in Karla's December 31, 2021, income statement would be (ignore taxes):

Multiple Choice

$8,504.

$7,951.

$9,492.

$4,549.