Blue Ocean Co.already spent $85,000 on a feasibility study for a machine that will produce a new product.The machine will cost $2,575,000.Required modifications will cost $375,000.Blue Ocean will need to invest $75,000 for additional inventory.The machine has an IRS approved useful life of seven years; it is presumed to have no salvage value.It will only be operated for three years, after which it will be sold for $600,000.What is the depreciable cost basis of the machine?
A)$3,025,000
B)$2,950,000
C)$2,575,000
D)$2,350,000

Question

Quizplus · Accepted Answer

Depreciable cost basis = (cost of machine + modifications + inventory) - salvage value
Depreciable cost basis = (2,575,000 + 375,000 + 75,000) - 600,000
Depreciable cost basis = 2,950,000