Royal Company purchased a dump truck at the beginning of 2014 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, 2016, the company made major repairs of $20,000 to the truck that extended the life 1 year.Thus, starting with 2016, the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.When calculating depreciation for 2016, Royal should

Question

Quizplus · Accepted Answer

Option A is the correct choice. The major repair cost of $20,000 should be added to the truck's book value at the end of 2015, resulting in a revised basis of $80,000 ($60,000 original cost + $20,000 major repair cost). This revised basis should then be depreciated over the remaining adjusted useful life of 5 years using the straight-line depreciation method. This will result in an annual depreciation expense of $12,400 (($80,000 - $8,000 salvage value) / 5 years).

Royal Company Purchased a Dump Truck at the Beginning of 2014