The company purchased as semi-truck at the beginning of 2011 at a cost of $135,0
ID: 2510108 • Letter: T
Question
The company purchased as semi-truck at the beginning of 2011 at a cost of $135,000. The truck had an estimated life of 8 years, an estimated residual value of $25,000, and will be depreciated using the straight-line method. On January 1, 2016, the company made major repairs valuing $32,500 to the semi-truck that extended the life by 7 years. Thus, starting with 2016, the truck had a remaining life of 10 years and a new salvage value of 20,000.
____ 1. Refer to Thunderbolt Inc. After repairs, what is the semi-truck’s book value at January 1, 2016?
a.
$58,375
b.
$66,250
c.
$90,875
d.
$98,750
____ 2. Refer to Thunderbolt Inc. What amount should be recorded as depreciation expense each year starting 2016?
a.
$13,750
b.
$7,375
c.
$7,875
d.
$9,875
a.
$58,375
b.
$66,250
c.
$90,875
d.
$98,750
Explanation / Answer
Cost = 135,000
Useful life = 8 years
Residual value = 25,000
Depreciation under Straightline method = (cost - residual value) / useful life
= (135,000 - 25,000) / 8
= 13,750
Accumulated depreciation on January 1, 2016 = 13,750*5 years = 68,750
1.
Book value on January 1, 2016 = Cost - Accumulated depreciation
= 135,000 - 68,750
= 66,250
2.
Total value of Semi-truck after repairs = 66,250+32,500 = 98,750
Remaining useful life = 10 years
Residual value = 20,000
Depreciation under Straightline method = (cost - residual value) / useful life
= (98,750 - 20,000) / 10
= 7,875