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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Inferring Original Cost

Barton Construction Company purchased a piece of heavy equipment on January 1, 2017, which it is depreciating using the straight-line method. The equipment’s useful life is 5 years and its residual value is $5,000. Barton recorded depreciation expense of $44,000 in 2018.

Required:

Determine the original cost of the equipment.

To determine

Concept introduction:

Cost:

The cost is defined as any amount incurred by the company to acquire the asset and get the asset to set in place and ready for use.

Straight-line Depreciation:

Depreciation is done by allocating the cost of the fixed assets other than land to expense over the useful life of the asset. The most commonly used method of depreciation is straight line method. In this method every year until the useful life of the asset, equal amount of assets cost to depreciation expense is allocated. The formula to calculate straight line depreciation is:

Straight line depreciation = (cost − residual value) / expected useful life

Requirement 1:

Compute the original cost of the equipment.

Explanation

We have to find the cost of the equipment by applying the known values such as the depreciation expense, residual value and assets useful life in the straight line method formula...

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