Description
(Accounting) $120,000 equipment purchased with $20,000 cash and a one year note payable for $100,000 plus interest at annual rate of 9%. The equipment is being depreciated by the straight line method over 20 years.
Explanation & Answer
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Capitalized cost = $120,000
The interest amounts are expensed and not added to capital value of fixed asset.
Hence depreciation will be provided on 120,000
The amount of depreciation per year = 120,000/20 = $6,000
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