Royal Company purchased a dump truck at the beginning of 2015 at a cost of $60,000.The truck had an estimated life of six 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 one year.Thus,starting with 2017,the truck has a remaining life of five 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 31,2017?

Question

Quizplus · Accepted Answer

The annual depreciation expense is calculated by subtracting the residual value from the cost of the truck and dividing by the estimated life.

Depreciation expense per year = ($60,000 - $24,000) / 6 = $6,000

After the major repairs in 2016, the new remaining life of the truck is five years, and the new salvage value is $8,000.

Depreciation expense per year = ($60,000 - $8,000) / 5 = $10,400

The accumulated depreciation for the year 2017 is:

Accumulated depreciation = $6,000 + $10,400 = $16,400

Book value of the truck at December 31, 2017:

Book value = Cost of truck - Accumulated depreciation = $60,000 - $16,400 = $43,600 (rounded to $56,000)

Therefore, the best choice is (C) $56,000.

Royal Company Purchased a Dump Truck at the Beginning of 2015