On January 1 , 20x5, Puppies and Paws Inc ( Puppies ) leased a big puppy play gym from Doggie Doodles Corporation for a 7 year period . Annual payments are 4,500, and include $ 700 for repairs on the play gym . The first payment is due at the commencement of the lease . The interest rate implicit in the lease is 8 % and is known by Puppies as they are very smart . The incremental borrowing rate is 6 % ( as the Puppies are cute and can negotiate a lower rate with the bank ) . Puppies has an option to purchase the play gym at the end of the lease for $ 9,000 . The fair value of the play gym is estimated to be $ 7,000 at the end of the lease term . The guaranteed residual value on the play gym is $ 10,000 and Puppies expects to payout $ 8,000 on the residual value guarantee ( as the puppies get very excited and like to chew the play gym all day long ) . Puppies depreciates all assets on a straight - line basis . Assume that Puppies elects to account for the lease and non - lease components separately. 

What is the amount of depreciation of the right of use asset will puppies for its year ended December 31, 20x5? 

a. $4,282 

b. $3,636 

c. $3,719 

d. $3.886

Answer rating: 100% (QA)

In the given question there are two component 1 Rent Lease Component 2 Repair Non Lease Comp... View the full answer