Pita, Inc. leased equipment from Tar Company under a four-year lease requiring equal annual payments of 86,038, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pita, Inc.'s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pita, Inc.) is 8%. Pita, Inc. uses the straight-line method to depreciate similar assets.

What is the amount of depreciation expense recorded by Pita, Inc. in the first year of the asset's life?

	PV Annuity Due	PV Ordinary Annuity
8%, 4 periods	3.57710	3.31213
10%, 4 periods	3.48685	3.16986

Select one:

a. 71,242

b. 75,000

c. 0 because the asset is depreciated by Tar Company.

d. 76,942