Question

Chapman Inc. purchased a piece of equipment which it depreciates on a straight-line basis. The useful life is 10 years and the residual value is estimated to be $12,000. Chapman’s annual depreciation expense is $11,000. What was the original cost of the building?

Answer 1

The original cost of the equipment is $122,000, calculated by adding the total depreciation of $110,000 over the useful life to the residual value of $12,000.

Step-by-step explanation:

The original cost of the equipment can be calculated using the information provided about the annual depreciation expense, the residual value, and the useful life of the equipment. Depreciation is the process of allocating the cost of a tangible asset over its useful life, and the straight-line method distributes the cost evenly across the useful life.

To calculate the original cost, we use the formula:

Original Cost = (Annual Depreciation x Useful Life) + Residual Value

In this case, the annual depreciation expense is $11,000 and the useful life is 10 years, so the total depreciation over the useful life is $11,000 x 10 = $110,000. Adding the residual value of $12,000 gives us an original cost of:

$110,000 + $12,000 = $122,000.