Hyde Company leased equipment to Pittman Corporation under a six year lease agreement that qualifies as a direct financing lease. The asset cost $160,000. The lease contains a bargain purchase option that is effective at the end of the sixth year. The asset has an expected economic life of 12 years and is expected to have a residual value of $4,000 at the end of the 12th year. Assuming that straight-line depreciation is used, what would be the annual depreciation?

A) $26,000
B) $26,667
C) $13,333
D) $13,000

Answer: D