An Asset Being Amortized with the Straight-Line Method Has a Residual

question 8

Multiple Choice

An asset being amortized with the straight-line method has a residual value of $20,000 and amortization expense of $25,000 in its second year. What was the original cost of the asset if its useful life was 10 years?

• A) $270,000
• B) $200,000
• C) $185,000
• D) $250,000

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Definitions:

Accumulated Depreciation

The cumulative amount of depreciation that has been charged to a fixed asset throughout its period of use.

Original Cost

The initial expenditure involved in acquiring an asset, including purchase price, transportation, and installation.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear.

Fixed Assets

Long-term tangible assets used in the operation of a business that are not expected to be converted into cash in the upcoming year.