Choice "C" is correct. The composite life is computed as follows: | | Estimated
Cost
| − | Salvage
Value
| = | Depreciable
Cost
| ÷ | Life
| = | Annual
Depreciation
|
|---|
Machine A | | $ 450,000 | | $ 30,000 | | $ 420,000 | | 6 | | $ 70,000 | Machine B | | 170,000 | | 10,000 | | 160,000 | | 8 | | 20,000 | Machine C | | 40,000 | | 0 | | 40,000 | | 4 | | 10,000 | Totals | | $ 660,000 | | $ 40,000 | | $ 620,000 | | | | $ 100,000 |
Composite life$620,000 ÷ $100,000.2Choice "d" is incorrect. If total cost (instead of depreciable cost) is divided by the annual depreciation, an incorrect composite life of 6.6 results.
Choices "a" and "b" are incorrect per the above calculation.
|
