Score: 0 of 3 pts 1 of 3 (0 complete) Hw Score: 0%, 0 of 10 pts Problem 7-7 (alg

Question

Score: 0 of 3 pts 1 of 3 (0 complete) Hw Score: 0%, 0 of 10 pts Problem 7-7 (algorithmic) i Question Help Cisoo 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 $12,000 per year, and the useful life of the system is expected to be four years. The SV for depreciation purposes is equal to 23% of the hadware cost Cost Cost Itenm Hardware $170,000 Training Installation$13,000 $14,000 a. What is the BV of the device at the end of year two if the SL depreciation method is used? b. Suppose that after depreciating the device for one year 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 two years? a. Using the SL depreciation method the BV of the device at the end of year two is $ 118050 (Round to the nearest dollar) b. The device's book value at the end of year two using the method described above is (Round to the nearest dollar)

Explanation / Answer

Since firm follow SL method for first year, BV at the end of first year will be: $ 157525.

[(197000 - 39475) = 157525]

So the rate of depriciation under SL method is (39475/197000)*100 = 20%.

Now, from year 2 firm is switching from SL method DDB method, hence the rate of depreciation for year 2 will be double the rate of depreciation as under SL method i.e., 20*2 = 40%.

Let us calculate depreciation amount for year 2 under DDB method.

a) BV as at end of year 1 = 157525

b) Rate of depreciation for year 2 = 40%

c) Depreciation for year 2 = 157525*0.4 = 63010

d) Book value at end of year 2 = (a-c) = 157525 - 63010 = $ 94515.

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