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Nature Power Company uses the composite method and straight-line depreciation for its power plant equipment. Its Apple River plant, which began generating electricity January 1, 2016 had the following equipment:
Equipment Life (years) Estimates Cost Residual Value
Turbines 25 $4,500,000 $500,000
Steam pipes 15 3,000.000 300,000
Furnace 20 6,000,000 0
1. Compute the composite depreciation rate.
2. Compute the average service life.
3. Compute 2016 depreciation.

Respuesta :

abiolataiwo2015

Answer:

A. 4.74%

B.19.8 years

C.$639,900

Explanation:

Nature Power Company

Cost

Equipment $4,500,000

Steam pipes $3,000,000

Furnace $6,000,000

Total $13,500,000

Cost - Residual = Depreciable base

Residual Depreciable base

$500,000 $4,000,000

$300,000 $2,700,000

$0 $6,000,000

Depreciable base total $12,700,000

Depreciable base ÷ life (years) = Straight line depreciation

Life ( years) Straight line depreciation

Turbines 25 $160,000

Steam pipes 15 $180,000

Furnace 20 $300,000

Total $ 640,000

1. Composite depreciation rate

$640,000 ÷ $13,500,000 = 4.74%

2. Average service life

$12,700,000 ÷$640,000 = 19.8 years

3. Depreciation

0.0474 x $13,500,000

= $639,900

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