A Company Buys an Oil Rig for $2,000,000 on January

Multiple Choice

A company buys an oil rig for $2,000,000 on January 1, 2014. 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 2014 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 $200,000 and interest expense of $40,000
D) Depreciation expense of $215,422 and interest expense of $15,422