ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct financing lease. The cost of the asset is $120,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is ten years. The lease term is 5 years. The asset is expected to have a residual value of $2,000 at the end of ten years. Using the straight-line method, what would Best record as annual depreciation?

Question

Quizplus · Accepted Answer

The Answer of ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct financing lease. The cost of the asset is $120,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is ten years. The lease term is 5 years. The asset is expected to have a residual value of $2,000 at the end of ten years. Using the straight-line method, what would Best record as annual depreciation?

ABC Company Leased Equipment to Best Corporation Under a Lease