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Question & Answer: ACME Company leased equipment to Ridley Corporation under a lease agreement that qualfies as a direct financing lease. The cost of the asset is…..

ACME Company leased equipment to Ridley Corporation under a lease agreement that qualfies as a direct financing lease. The cost of the asset is $126.000. The lease contalns a bargain purchase option that is effectlive at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is five years. The asset is expected to have a residual value of $2.900 at the end of 10 years. Using the straight line method, what would Ridley record as annual depreciation? O $24,620. O $12.890. O $12.310. O $12600.

ACME Company leased equipment to Ridley Corporation under a lease agreement that qualfies as a direct financing lease. The cost of the asset is $126.000. The lease contalns a bargain purchase option that is effectlive at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is five years. The asset is expected to have a residual value of $2.900 at the end of 10 years. Using the straight line method, what would Ridley record as annual depreciation? O $24,620. O $12.890. O $12.310. O $12600.

Expert Answer

 

For calculating depreciation the term will be divided by number of years of lease.

(126000 – 2900)/5 = 24620. Answer is option 1st $24,620

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