Question
SuperByte Corporation Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture
SuperByte Corporation Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture the equipment was $12 million. The lease agreement between SuperByte and Laguna Madre had the follow terms:
1. The lease is noncancellable.
2. The lease has no residual value or bargain purchase option.
3. The lease term is 8 years; payments are made semiannually.
4. Depreciation is recorded each December 31 using the straightminus line approach.
5. The economic life of the equipment is 8 years.
6. The lessee's incremental borrowing rate and the implicit interest rate are both 12% annually.
7. The lease payments are $1,493,617 semiannually. The first payment is due at the inception of the lease; subsequent payments are made every July 1 and January 1. 8. The fair value of the equipment at the inception of the lease is $16,000,000. Refer to SuperByte Corporation. What amount of depreciation will Laguna Madre record in its income statement on December 31 of the current year?
A. $2,000,000
B. $1,493,617
C. $1,500,000
D. $2,987,234
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