ABC Company leased equipment to XYZ Corporation under a lease agreement that qualifies as a direct financing lease. The cost of the asset is $130,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is five years. The asset is expected to have a residual value of $2,500 at the end of 10 years. Using the straight-line method, what would XYZ record as annual depreciation?
All methods and formulas used must be in concordence with GAAP standards, also please show how you got your numbers and no calculator or excel tricks, please.