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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Buffalo, Inc., uses composite depreciation for its assets. Buffalo owns a car with a cost of $25,000, a residual value of $1,500, and a useful life of 5 years; as well as equipment with a cost of $7,500, a residual value of $750, and a useful life of 10 years. Based on this information, calculate Buffalo’s composite depreciation rate.

To determine

Ascertain the composite depreciation rate of Company B.

Explanation

Depreciation: Depreciation is a method of reducing the capitalized cost of long-lived operating assets or plant assets for the period the asset is used.

Ascertain the composite depreciation rate of Company B as follows:

Calculate the depreciation rate as follows:

Depreciation rate = [Total annual depreciationTotal cost×100]=$5,375(1)$32,500×100=16

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