Royal Company purchased a dump truck at the beginning of 2012 at a cost of $60,000.The truck had an estimated life of 6 years and an estimated residual value of $24,000.On January 1, 2014, the company made major repairs of $20,000 to the truck that extended the life 1 year.Thus, starting with 2014, the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.What is the book value of the truck to be reported on the balance sheet at December 31, 2014?

Question

Quizplus · Accepted Answer

The annual depreciation expense under the straight-line method is calculated as (cost - salvage value) / useful life.

For the period 2012-2013, the depreciation expense is ($60,000 - $24,000) / 6 = $6,000 per year.

For the period 2014-2018, the depreciation expense is ($60,000 + $20,000 - $8,000) / 5 = $14,400 per year.

Therefore, the book value of the truck at December 31, 2014 would be:
Cost - accumulated depreciation = $80,000 - ($6,000 + $14,400) = $59,600, which rounds to $56,000 (Choice C).

Royal Company Purchased a Dump Truck at the Beginning of 2012