A farmer sold a depreciable asset for $1,500, had claimed $700 depreciation, and reported a taxable realized gain of $200. What was the asset's original cost?

A farmer sold a depreciable asset for $1,500, had claimed $700 depreciation, and reported a taxable realized gain of $200. What was the asset's original cost?

• A. $2,000
• B. $1,500
• C. $1,300
• D. $1,800

Answer: (A)

When you sell a depreciable asset, the gain you report equals the selling price minus the asset’s adjusted basis. The adjusted basis is the original cost minus accumulated depreciation. Here, selling price is 1,500 and accumulated depreciation is 700, so the adjusted basis is OriginalCost − 700. The taxable realized gain is 200, so: 200 = 1,500 − (OriginalCost − 700) Simplify: 200 = 1,500 − OriginalCost + 700 = 2,200 − OriginalCost OriginalCost = 2,200 − 200 = 2,000 So the asset’s original cost was 2,000.

When you sell a depreciable asset, the gain you report equals the selling price minus the asset’s adjusted basis. The adjusted basis is the original cost minus accumulated depreciation.

Here, selling price is 1,500 and accumulated depreciation is 700, so the adjusted basis is OriginalCost − 700. The taxable realized gain is 200, so:

200 = 1,500 − (OriginalCost − 700)

Simplify: 200 = 1,500 − OriginalCost + 700 = 2,200 − OriginalCost

OriginalCost = 2,200 − 200 = 2,000

So the asset’s original cost was 2,000.