On January 1, Year 1, Li Company Purchased an Asset

question 59

Multiple Choice

On January 1, Year 1, Li Company purchased an asset that cost $95,000. The asset had an expected useful life of five years and an estimated salvage value of $19,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $9,500. Based on this information, the amount of depreciation expense to be recognized at the end of Year 4 is:

• A) $15,200.
• B) $19,950.
• C) $39,900.
• D) $24,700.

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Definitions:

Discounted Payback

The period of time it takes for the sum of the discounted cash flows to pay back the initial investment.

Payback

The amount of time it takes for an investment to generate enough returns to recover the original investment cost.

Average Accounting Return

A financial ratio that reflects the average net income of an investment compared to its average book value.

Liquid Investments

Assets that can be easily converted into cash with minimal impact on their value.