At the beginning of his first year at university, Georgio Labos bought a used combination colour television and stereo system for $ 960. He estimates that these two items will be almost worthless by the time he graduates in four years and plans to abandon them then.
Required:
1. Assume that Georgio expects to receive four years of entertainment services for the $ 960. What is the book value of these items after one year? Use straight- line depreciation with no residual value.
2. The university’s academic year lasts a total of 30 weeks, from early September to late April. Georgio does not take the TV and stereo system with him on vacations. During the academic year, he participates in many activities, so he averages three hours per week of watching television and listening to music. What is the average cost per hour of use? (Ignore costs of electricity and repairs.)
3. Georgio is disturbed by the answer to (2). He complains to a friend that this amount exceeds the hourly cost of going to the movies on specific days of the week. His friend suggests that he could lower the average cost by leaving the TV set on whenever he goes to class. Georgio attends classes for 12 hours per week. Comment on this suggestion.
4. After owning the TV set and stereo system for one year, Georgio became curious about the price he could get for selling these items. He discovered that the most he could receive is $ 600. He does not plan to sell them but the information distresses him. What amount should he associate with the TV set and stereo system after one year? Explain.