Superbyte Corporation Sells Photographic Equipment

Multiple Choice

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 $14,000,000. 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 straight-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.
What amount of depreciation will Laguna Madre record in its income statement on December 31 of the current year?

A) $1,443,500
B) $1,750,000
C) $2,000,000
D) $1,875,000