Cisco Systems is purchasing a new bar code-scanning device for its service cente
ID: 2485770 • Letter: C
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 $11,000 per year, and the useful life of the system is expected to be five years. The SV for depreciation purpose is equal to 26% of the hardware cost. What is the BV of the device at the end of year four if the SL depreciation method is used? 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 three years). What is the device's BV at the end of four years? Using the SL depreciation method the BV of the device at the end of year four is $. (Round to the nearest dollar.) The device's book value at the end of year four using the method described above is $. (Round to the nearest dollar.)Explanation / Answer
a. Answer
Here, Depreciable Value = Cost of Equipment (1- Salvage Value rate) + Training + Installation
........................................= $150,000 x (1 - 0.26) + $17,000 + $13,000
........................................= $141,000
Calculate the book value
Using the SL depreciation method the BV of the device at the end of year four is $67,200
b. Answer
Book Value at the end of 2nd year after depreciation = $123,600
Depreciation Rate = 1 / 3 = 33.33%
Depreiation for 3rd Year = $123,600 x 33.33%
........................................= $41,200
Book Value at the end of 3rd year = $123,600 - $41,200
......................................................= $82,400
Depreciation for 4th year = $82,400 x 33.33%
.........................................= $27,464
Book Value at the end of 4th year = $82,400 - $27,464
..........................................................= $54,936
Year Depreciable Value (A) Depreciation (A / 5) Accumulated Depreciation Item Cost Book Value 1 $141,000 $28,200 $28,200 $180,000 $151,800 2 $141,000 $28,200 $56,400 $180,000 $123,600 3 $141,000 $28,200 $84,600 $180,000 $95,400 4 $141,000 $28,200 $112,800 $180,000 $67,200 5 $141,000 $28,200 $141,000 $180,000 $39,000Related Questions
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