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What is the amount of depreciation expense

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Reference no: EM133129702

Question - On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:

Present value of $1 0.567427

Present value of ordinary annuity of $1 3.604776

Required - If the Mary Company uses the straight-line method of depreciation for its assets, what is the amount of depreciation expense for the leased equipment for the year ending December 31, 2016?

A. $14,419

B. $13,727

C. $15,554

D. $12,419

Reference no: EM133129702

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