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A company buys an oil rig for $2,000,000 on January 1, 2012.

10. A company buys an oil rig for $2,000,000 on January 1, 2012. The life of the rig is 10 years
and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10%
is $154,220). 10% is an appropriate interest rate for this company. What expense should be
recorded for 2012 as a result of these events?
a. Depreciation expense of $240,000
b. Depreciation expense of $200,000 and interest expense of $15,422
c. Depreciation expense of $215,420 and interest expense of $15,422
d. Depreciation expense of $200,000 and interest expense of $40,000
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Accounting-8202245.doc

10. A company buys an oil rig for $2,000,000 on January 1, 2012. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10%...

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