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22 November, 22:53

A company buys an oil rig for $3,000,000 on January 1, 2018. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2018 as a result of these events? a. Depreciation expense of $360,000 b. Depreciation expense of $300,000 and interest expense of $23,133 c. Depreciation expense of $300,000 and interest expense of $60,000 d. Depreciation expense of $323,133 and interest expense of $23,133

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  1. 22 November, 22:56
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    Answer: D. Depreciation expense of $323,133 and interest expense of $23,133

    Explanation:

    Cost of asset = $3,000,000 + $231,330 = $3,231,330

    Depreciation = $3,231,330 * 10% = $323,133

    Interest expense = $231,330 * 10%

    = $23,130
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