Question

A small business owner purchased equipment on credit for $125,000. It cost the owner $7,000 to ship it all, $5,000 to set-up and test the equipment, and will cost $22,000 annually for labor to run the equipment. The depreciable basis of the equipment is:

Answer 1

A. $12,000 B. $34,000 C. $125,000 D. $137,000

The depreciable basis of the equipment is $137,000,option D

Step-by-step explanation:

The depreciable basis of the equipment is the initial cost of the equipment to be recognized as asset ,which consists of the original purchase price of $125,000,the shipping cost of $7,000,set-up and testing cost of $5,000.

The annual labor cost of running the equipment is not part of the initial cost as it is an annual expense to be recognized directly in income statement as payroll cost.

Depreciable basis=$125,000+$7,000+$5,000=$137,000