Reference no: EM132762046
Question - On January 1, 20X4, Kangaroo Inc. (KI) entered into a lease agreement contract that entitled it to use equipment. Details of the contract follow:
Lease payment, including maintenance agreement $85,000
Maintenance agreement included in lease payment $3,000
Implicit rate in the lease (not known) 4%
Incremental borrowing rate 5%
Lease term 6 years
Economic life of equipment 7 years
Guaranteed residual value $20,000
Expected pay-out on residual value guarantee $6,000
Option to purchase No
First annual payment due Commencement date
KI's year-end is December 31. KI elects to adopt the practical expedient available to it and not to separately report the lease and non-lease components in the contract. What is the amount that it will record for depreciation of this right-of-use asset for its year-ended December 31, 20X4?
a. $73,582
b. $65,355
c. $77,988
d. $76,247
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