ABC 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.ABC will need to invest $75,000 for additional inventory.The machine has a useful life of 7 years;it is presumed to have no salvage value.It will only be operated for 3 years,after which it will be sold for $600,000.What is the depreciable cost basis of the machine?

Question

Quizplus · Accepted Answer

The depreciable cost basis of the machine is calculated as follows:
Cost of the machine + Required modifications + Additional inventory = $2,575,000 + $375,000 + $75,000 = $3,025,000

However, we need to subtract the amount attributed to the feasibility study and the expected sale of the machine at the end of its useful life. Therefore:
Depreciable cost basis = $3,025,000 - $85,000 - $600,000 = $2,340,000

Therefore, the best choice is B, with a depreciable cost basis of $2,340,000.

ABC Already Spent $85,000 on a Feasibility Study for a Machine