A Company Buys an Oil Rig for $1,000,000 on January

Multiple Choice

A company buys an oil rig for $1,000,000 on January 1, 2007.The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $200,000 (present value at 10% is $77,110) .10% is an appropriate interest rate for this company.What expense should be recorded for 2007 as a result of these events?

A) Depreciation expense of $120,000
B) Depreciation expense of $100,000 and interest expense of $7,711
C) Depreciation expense of $100,000 and interest expense of $20,000
D) Depreciation expense of $107,710 and interest expense of $7,711