Orkney Company has 2-year-old machinery with a book value of $300,000,based on straight-line depreciation.The machinery has a 5 year economic life and $30,000 salvage value.What was the original cost?
A)$480,000
B)$500,000
C)$530,000
D)unable to determine from the information given

Question

Quizplus · Accepted Answer

The original cost can be calculated by adding the depreciation expense for 2 years back to the current book value and considering the salvage value. The annual depreciation is (Original Cost - Salvage Value) / Useful Life. Given a 5-year life and a $30,000 salvage value, and knowing the book value after 2 years is $300,000, we can work backwards. The annual depreciation is (Original Cost - $30,000) / 5. After 2 years, $300,000 is the book value, which means $180,000 (2 years of depreciation) has been subtracted from the original cost. Adding the $180,000 depreciation back to the $300,000 book value gives $480,000, which includes the salvage value. Therefore, the original cost was $480,000.

Orkney Company Has 2-Year-Old Machinery with a Book Value of $300,000,based