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Question: New Mexico Corporation leased equipment under an agreement that qualifies as a capital lease. The present value of the minimum lease payments is $120,000. The lease term is five years. After the expiration of the original five year lease, the lease contains a bargain renewal option for three additional years. The expected economic life of the asset is ten years. Using the straight-line method, what would New Mexico record as annual depreciation expense on this leased equipment?

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