Royal Company purchased a dump truck at the beginning of 2012 at a cost of $50,000.The truck had an estimated life of 5 years and an estimated residual value of $20,000.On January 1,2014,the company made major repairs of $30,000 to the truck that extended the life 3 years.Thus,starting with 2014,the truck has a remaining life of 5 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 31,2014?

Question

Quizplus · Accepted Answer

Annual depreciation = (50,000 - 20,000) / 5 = $6,000 
After the repairs, the remaining depreciable cost = ($50,000 - $6,000 x 2) = $38,000 
Annual depreciation = ($38,000 - $8,000) / 5 = $6,000 
Book value at December 31, 2014 = $50,000 - ($6,000 x 3) = $32,000 
However, the book value cannot be less than the new salvage value of $8,000, so the book value will be the higher of the two: 
Book value at December 31, 2014 = max($8,000, $32,000) = $56,000

Royal Company Purchased a Dump Truck at the Beginning of 2012