Fernbank Farms

This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms. What is the truck's book value at December 31, 2021?

Question

Fernbank Farms
​
This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms. What is the truck's book value at December 31, 2021?

Quizplus · Accepted Answer

- Annual depreciation = (Cost - Residual value) / Useful life
- Annual depreciation = ($100,000 - $20,000) / 5 = $16,000
- Depreciation expense for 2021 = $16,000
- Accumulated depreciation as of December 31, 2021 = Depreciation expense x number of years of use
- Accumulated depreciation as of December 31, 2021 = $16,000 x 3 = $48,000
- Book value as of December 31, 2021 = Cost - Accumulated depreciation - Major repairs
- Book value as of December 31, 2021 = $100,000 - $48,000 - $30,000 + $8,000
- Book value as of December 31, 2021 = $30,000

Fernbank Farms ​

Fernbank Farms