Neils Company leased an asset for use in its factory. The lease agreement specifies that Neils is to make annual payments of $2,818 payable at the end of each year. The lessor classified the lease as a direct-financing lease since Neils was allowed to lease the asset at its cost of $14,000 (the present value of the lease payments). The lessor receives a 1 . percent rate of return on the lease
The estimated residual value at the end of the lease term is zero. If the lease was classified as a capital lease by Neils, how much annual depreciation would Neils record using the straight-line method?
a. $1,400
b. $1,310
c. $1,750
d. $2,818
C
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