Royal Company purchased a dump truck at the beginning of 2012 at a cost of $50,0
ID: 2420413 • Letter: R
Question
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?
a.
$44,000
c.
$56,000
b.
$50,000
d.
$62,000
a.
$44,000
c.
$56,000
b.
$50,000
d.
$62,000
Explanation / Answer
2012 Cost of the truck 50000, useful life = 5 years, residual value = 20000
Depreciation as per SLM = (50000-20000)/5 = 6000 per year
Book value of truck after 2 years of depreciation 50000-(2*6000) = 38000 as on jan 1 2014
Value addition = 30000
New Value after addition = 30000+38000 = 68000
New residual value = 8000
New Useful life = 5
New depreciation per year = (68000-8000)/5 = 12000 per year
Book value after current year depreciation = 68000-12000 = $56000
Ans is c $56,000
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