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):
A)$23,960
B)$48,000
C)$22,200
D)$44,400

Question

Quizplus · Accepted Answer

The correct answer is A. The annual depreciation expense is calculated as (Cost of asset - Estimated residual value) / Estimated life of asset = (240,000 - 400) / 10 = 23,960.

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