Exhibit 20-2On 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:
Present value of $10.567427
Present value of ordinary annuity of $13.604776
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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?
A. $15,554
B. $14,419
C. $13,727
D. $12,419
Answer: C
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