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
D) $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 is the portion of the total depreciable amount that has not yet been depreciated. Total depreciable amount is $120,000 - $8,000 = $112,000. Annual depreciation is $112,000 ÷ 8 = $14,000. After 5 years, $70,000 has been depreciated ($14,000 × 5). Therefore, remaining depreciable basis is $112,000 - $70,000 = $42,000.
Why the Other Options Are Wrong
Option A: $70,000
$70,000 represents the accumulated depreciation after 5 years, not the remaining depreciable basis. This is the amount that has already been depreciated and written off, which is the opposite of what the question asks for.
Option B: $112,000
$112,000 is the total depreciable amount (original cost minus salvage value), not the remaining amount. This ignores the fact that 5 years of depreciation have already been taken, reducing the remaining depreciable basis.
Option C: $50,000
$50,000 appears to be the book value after 5 years ($120,000 - $70,000), but this includes the salvage value. The remaining depreciable basis excludes salvage value and represents only the amount left to depreciate.
Memory Technique
Remember 'RDB = TDB - AD': Remaining Depreciable Basis equals Total Depreciable Basis minus Accumulated Depreciation. Think of it as a pie - you start with the whole depreciable pie, then subtract the slices already eaten (depreciated).
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