A capitalized lease has a title transfer clause. The lease term is 5 years and the useful life of the asset is 7 years. The residual value at the end of the lease term is estimated to be $20,000. The residual value at the end of the assets useful life is estimated to be $5,000. Choose the correct statement about the parameters to be used by the lessee to compute annual depreciation.

a. residual value, $5,000; useful life 7 years

b. residual value, $5,000; useful life 5 years

c. residual value, $20,000; useful life 7 years

d. residual value, $20,000; useful life 5 years

e. lessee does not depreciate the leased