Exhibit 20-2
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:
-Refer to Exhibit 20-2. 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?

Question

Exhibit 20-2
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: 
-Refer to Exhibit 20-2. 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?

Quizplus · Accepted Answer

The straight-line method of depreciation divides the cost of the asset evenly over its useful life. Without the specific details from Exhibit 20-2, the correct answer cannot be determined directly from the provided information. However, based on the question's context, if C is the correct choice, it implies that the total cost of the leased equipment, minus any salvage value, divided by the useful life of the equipment, results in an annual depreciation expense of $13,727 for the year ending December 31, 2016.

Exhibit 20-2 on January 1, 2016, Mary Company Leased Equipment, Signing a Signing