Fernbank Farms This company purchased a semi truck at the beginning of 2011 at a cost of $100,000.The truck had an estimated life of 5 years,an estimated residual value of $20,000,and will be depreciated using the straight-line method.On January 1,2013,the company made major repairs of $30,000 to the truck that extended the life 3 years.Thus,starting with 2013,the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms.What is the truck's book value at December 31,2013?

Question

Quizplus · Accepted Answer

The annual depreciation expense is calculated as (cost - salvage value) / useful life = ($100,000 - $20,000) / 5 = $16,000 per year.
At the end of 2012, the accumulated depreciation was $16,000 x 2 = $32,000.
After the major repairs, the remaining depreciable cost is $100,000 - $32,000 - $30,000 = $38,000.
The annual depreciation expense in 2013 and subsequent years is ($38,000 - $8,000) / 5 = $6,000.
Therefore, the accumulated depreciation at the end of 2013 is $32,000 + $6,000 = $38,000.
The book value at the end of 2013 is the cost minus accumulated depreciation, which is $100,000 - $38,000 = $62,000. Thus, the correct answer is C.

Fernbank Farms This Company Purchased a Semi Truck at the Beginning