Carla Vista Corporation is a lessee with a capital lease. The asset is recorded

Question

Carla Vista Corporation is a lessee with a capital lease. The asset is recorded at $1040000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $370000 at the end of 5 years, and a fair value of $135000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense would the lessee record for the first year of the lease? $208000 $113125 O $181000 $134000

Explanation / Answer

Depreciation expense = (1040000-135000)/8= 113125 Option 2 is correct

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