Aggie, Inc.
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.
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Refer to Aggie, Inc.'s information presented above, if Aggie uses the straight-line method, what is the book value at December 31, 2013?
A) $ 8,000
B) $ 6,000
C) $10,000
D) $ 4,000

Question

Aggie, Inc. 
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.
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Refer to Aggie, Inc.'s information presented above, if Aggie uses the straight-line method, what is the book value at December 31, 2013?
A) $ 8,000
B) $ 6,000
C) $10,000
D) $ 4,000

Quizplus · Accepted Answer

Under the straight-line method, annual depreciation is calculated as (Cost - Salvage Value) / Useful Life. For the truck, this is ($12,000 - $2,000) / 5 = $2,000 per year. By December 31, 2013, three years of depreciation have occurred, totaling $6,000. The book value is the original cost minus accumulated depreciation: $12,000 - $6,000 = $6,000.

Aggie, Inc. Aggie, Inc. Purchased a Truck at a Cost of $12,000