At the beginning of the current year, a firm purchased an asset for $60,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the straight-line method, the book value of the asset after the second year, will be:

Question

Quizplus · Accepted Answer

The book value of an asset is its purchase price minus the accumulated depreciation. The accumulated depreciation is calculated by multiplying the annual depreciation by the number of years the asset has been in use. In this case, the annual depreciation is ($60,000 - $5,000) / 5 = $11,000. After the second year, the accumulated depreciation will be $11,000 * 2 = $22,000. Therefore, the book value of the asset after the second year will be $60,000 - $22,000 = $38,000.

At the Beginning of the Current Year, a Firm Purchased