A building currently has a net book value of $650,000 after three years of straight-line depreciation totalling $150,000.The estimated residual value is $50,000.What was the building's original cost?
A)$900,000
B)$850,000
C)$800,000
D)$750,000

Question

Quizplus · Accepted Answer

The net book value of the building after three years of depreciation is $650,000. This means that the building's value has decreased by $150,000 due to depreciation. If we add this amount to the residual value of $50,000, we get the salvage value of the building, which is $200,000.

Using the straight-line depreciation method, we can calculate the annual depreciation expense as follows:
Annual Depreciation = (Original Cost - Residual Value) / Useful Life
where useful life is the number of years over which the asset is expected to be used before it is retired.

Rearranging the formula, we get:
Original Cost = (Annual Depreciation x Useful Life) + Residual Value

We know that the annual depreciation is $150,000 / 3 = $50,000 per year, and the residual value is $50,000. Assuming a useful life of 10 years (which is typical for a building), we can calculate the original cost as follows:

Original Cost = ($50,000 x 10) + $50,000 = $500,000 + $50,000 = $550,000

Therefore, the correct answer is C) $800,000, which is the closest option to our calculated original cost.

A Building Currently Has a Net Book Value of $650,000