On January 1, 2016, Wasson Company purchased a delivery vehicle costing $40,000. The vehicle has an estimated 6-year life and a $4,000 residual value. What is the vehicle's book value as of December 31, 2017, assuming Wasson uses the straight-line depreciation method?

Question

Quizplus · Accepted Answer

Using the straight-line depreciation method, the annual depreciation expense is calculated as follows:

Depreciation expense = (Cost - Residual value) / Useful life
Depreciation expense = ($40,000 - $4,000) / 6 years
Depreciation expense = $6,000 per year

To determine the book value of the vehicle as of December 31, 2017, we need to subtract two years of depreciation expense from the original cost:

Book value = Cost - Accumulated depreciation
Book value = $40,000 - ($6,000 x 2)
Book value = $28,000

Therefore, the vehicle's book value as of December 31, 2017, is $28,000. Therefore, the correct answer is D.

On January 1, 2016, Wasson Company Purchased a Delivery Vehicle