Cisco Systems is purchasing a new bar code-scanning device for its service cente

Question

Cisco Systems is purchasing a new bar code-scanning device for its service center in San Francisco. The table that on the right lists the relevant cost items for this purchase. The operating expenses for the new system are $9,000 per year, and the useful life of the system is expected to be six years. The SV for depreciation purposes is equal to 23% of the hardware cost. Cost Hardware Training Installation Item Cost $150,000 $15,000 $13,000 a. What is the BV of the device at the end of year four if the SL depreciation method is used? b. Suppose that after depreciating the device for two years with the SL method, the firm decides to switch to the double declining balance depreciation method for the remainder of the device's life (the remaining four years). What is the device's BV at the end of three years? a. Using the SL depreciation method the BV of the device at the end of year four is $ 82333 (Round to the nearest dollar.) b. The device's book value at the end of year three using the method described above is (Round to the nearest dollar)

Explanation / Answer

Answer:- The SL depreciation method is used

B(cost basis) =$150,000+$15,000+$13,000=$178,000

Salvage value at the end of the year three = $150,000*0.23 =$34,500

Depreciation in the year 3 = ($178000-$34500)/3=$47833.33

Book Value at the end of the year three = $178,000-3*$47,833.33=$34,500

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