Equipment originally costing $120,000 has been depreciated using the straight-line method over 8 years with a $8,000 salvage value. After 5 years, what is the remaining depreciable basis?
Correct Answer
A) $42,000
Annual depreciation = ($120,000 - $8,000) ÷ 8 = $14,000. After 5 years, accumulated depreciation = $70,000. Remaining depreciable basis = $112,000 total depreciable amount - $70,000 already depreciated = $42,000.
Why This Is the Correct Answer
The remaining depreciable basis represents the portion of the total depreciable amount that has not yet been depreciated. The total depreciable amount is $112,000 ($120,000 - $8,000 salvage). After 5 years of $14,000 annual depreciation, $70,000 has been depreciated, leaving $42,000 remaining to be depreciated over the final 3 years.
Why the Other Options Are Wrong
Option B: $50,000
This represents the book value after 5 years ($120,000 - $70,000 = $50,000), not the remaining depreciable basis. The book value includes the salvage value, while depreciable basis excludes it.
Option C: $70,000
This is the accumulated depreciation after 5 years ($14,000 × 5 = $70,000), which represents what has already been depreciated, not what remains to be depreciated.
Option D: $112,000
This is the total depreciable amount ($120,000 - $8,000 = $112,000), which would only be correct at the beginning before any depreciation has been taken.
Memory Technique
Think 'RDB = TDB - AD' (Remaining Depreciable Basis = Total Depreciable Basis - Accumulated Depreciation). Always subtract salvage value first, then work with the depreciable amount.
Reference Hint
Look up 'Depreciation Methods' and 'Straight-Line Depreciation' in accounting or business management chapters of contractor reference materials.
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