WXZ entered into a direct financing lease with TUV for the use of an asset which cost WXZ $240,000.The lease agreement contained a bargain purchase option effective immediately after the fifth rental,which provided that TUV could purchase the asset at that time.The estimated life of the asset was 10 years with an estimated residual value of $400.TUV's annual depreciation expense is (use straight- line):

Question

Quizplus · Accepted Answer

The annual depreciation expense can be calculated as follows:
Total cost of asset - Estimated residual value / Estimated life
= ($240,000 - $400) / 10 years
= $23,960
Since the lease contains a bargain purchase option, TUV is considered to be the owner of the asset and must record the depreciation expense. Therefore, the annual depreciation expense for TUV is $23,960. Option B is the closest to this value.

WXZ Entered into a Direct Financing Lease with TUV for the Use