On January 1, Year 2, Ballard Company spent $12,000 on an asset to improve its quality. The asset had been purchased on January 1, Year 1, for $52,000. The asset had a $4,000 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 original cost of the asset is $52,000 with a $4,000 salvage value and a 6-year life, resulting in annual depreciation of $8,000 (($52,000 - $4,000) / 6). By January 1, Year 2, one year of depreciation has occurred, reducing the book value to $44,000 ($52,000 - $8,000). The $12,000 improvement increases the book value to $56,000. From Year 2 to Year 5, three more years of depreciation occur, totaling $24,000 (3 years x $8,000), reducing the book value to $32,000 ($56,000 - $24,000).

On January 1, Year 2, Ballard Company Spent $12,000 on an Asset