On January 1, Year 2, Ballard Company spent $22,000 on an asset to improve its quality. The asset had been purchased on January 1, Year 1, for $58,000. The asset had a $14,800 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, Year 5?

Question

Quizplus · Accepted Answer

The book value of the asset on January 1, Year 5, would be $38,000. This is calculated by taking the original cost of the asset ($58,000), subtracting the salvage value ($14,800), and then dividing the result by the asset's life (6 years). This gives us an annual depreciation expense of $7,333.33. Multiplying this by the number of years the asset has been in use (4 years) gives us a total depreciation expense of $29,333.32. Subtracting this from the original cost of the asset gives us the book value of $38,000.

On January 1, Year 2, Ballard Company Spent $22,000 on an Asset