Chapter 11, Problem 42RSCQ

General accounting question and correct answer

Using the High low method determine the variable cost per unit

LYNX Corporation leases machinery on January 1, Year One, for 5 years, while the machinery has a total useful life of 5 years. Ownership of the machinery will transfer to the lessee at the end of the lease term. Lease payments are $15,000 per year, with the first payment made immediately. The present value of these payments at the lessee's incremental borrowing rate of 7 percent is $61,250. What amount of depreciation expense should LYNX Corporation recognize for Year One?