Sacramento Company owns a fixed asset with an original cost of $100,000.Magic Company estimates it will use the asset for 4 years, at which time the asset can be sold for $10,000.The book value of the asset after three years of use is_____.
A)$32,500
B)$50,000
C)$45,000
D)$100,000

Question

Quizplus · Accepted Answer

The book value after three years is calculated by subtracting the accumulated depreciation from the original cost. The asset depreciates $90,000 ($100,000 original cost - $10,000 salvage value) over 4 years, which is $22,500 per year ($90,000 / 4 years). After three years, the accumulated depreciation is $67,500 ($22,500 * 3 years). Therefore, the book value is $32,500 ($100,000 original cost - $67,500 accumulated depreciation).

Sacramento Company Owns a Fixed Asset with an Original Cost