What is the lowest credit rating you can get and still be investment worthy?
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Answer:
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Explanation:
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A.
Cost of asset = c
Useful life = 5
Depreciation expense using the double declining method = Depreciation factor x cost of the asset
Depreciation factor = 2 x (1/useful life)
= 2 × (1/5) = 0.4 = 40%
Because the depreciation factor is 40%, the remaining book value after depreciation would be 60%.
Note that : Book value in year 1 = Cost of asset - Depreciation expense of year 1
Book value in year in subsequent years = previous book value - that year's depreciation expense
The book value in year 2: 0.6c x $51,000
Solve for c = 51,000 / 0.6 = 85,000
So, the book value in year 2 is $85,000
The book value in year 1 which is also the cost of the asset can be found using this equation : (2 / 5 ) x c = $85,000
Solve for c = $85,000 × (5/2) = $212500
The cost of the asset is $212,500
For asset b
Sum of the year Depreciation expense = (number of useful life remaining / sum of useful years) x (Cost of asset - Salvage value)
number of useful life remaining at year 2 = 7
Sum of useful life = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36
The equation for year 2 depreciation : (7/36) × ($40,000 - Salvage value) = $7,000
0.194444 × ($40,000 - Salvage value) = $7,000
Make salvage value the subject of the formula and solve
Salvage value = $4,000
For asset c,
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
Inputting the values given for asset C into the above equation: ($103,000 - $13,000) ÷ useful life = $9,000
= $90,000 / useful life = $9,000
Solve for useful life, useful life = 10 years
For asset D,
To find the depreciation method used , we have to employ trial and error method. We would try all the depreciation methods available and determine which depreciation method would give us the depreciation value of $23,900
I would start with the straight line depreciation method Deprecation method.
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
= ($268,000-$29,000)/10 = $23,900
From the above calculation, the depreciation method used is the straight line depreciation method.
For asset E,
The 150% declining method = Depreciation factor x cost of the asset
Depreciation factor = 1.5 x (1/useful life)
1.5 x (1/8) = 0.1875
To derive the depreciation expense in year 2, the book value at the beginning of year 2 has to be determined. To determine the year 2 book value, the depreciation expense in year one has to be determined.
Year 1 depreciation expense = 0.1875 x $219,000 = $41,062.50
Year 2 , book value = $219,000 - $41,062.50 = $177,937.50
Depreciation expense in year 2 = 0.1875 x $177,937.50 = $33,363.28
I hope my answer helps you
