Lena Horn bought a Toyota Tundra on January 1 for $30,000 with an estimated life of 5 years. The residual value of the truck is $5,000. Assume a straight-line method of depreciation.
a. What will be the book value of the truck at the end of year 4?
b. If the Tundra was bought the first year on April 12, how much depreciation would be taken the first year?
The straight-line method for depreciation is a 5 step method
1) Take the initial cost... $30,000
2) subtract the salvage value (residual value) $30,000-$5000 = 25000
3) Get the useful life ...in this case 5 years)
4) divide the useful life into 1 and this gives the line depreciation ... 1/5 = 20%
5) multiply the depreciation rate by the asset cost (less the salvage)... 20%x25000 = 5000 per year
a) The book value at the end of year 5... start with your $30,000 and take off 5000 per year.
Hope this helps : )
I love Damon's answer... as this was a gentle... use your head question : )
Thanks, but the second one was wrong. I think they want after April 12 to Dec 31.
so 5000 * (365 - that number)/365
Of course if they mean the full year from April 1 to April 1 it is 5,000
To calculate the book value of the truck at the end of year 4 (Question a), we can use the straight-line method of depreciation.
The straight-line method evenly spreads the depreciation expense over the useful life of the asset. To determine the annual depreciation, we need to subtract the residual value from the initial cost and divide it by the useful life:
Annual Depreciation Expense = (Initial Cost - Residual Value) / Useful Life
In this case, the initial cost of the truck is $30,000, the residual value is $5,000, and the useful life is 5 years. Using the formula above, we can calculate the annual depreciation expense:
Annual Depreciation Expense = ($30,000 - $5,000) / 5
= $25,000 / 5
= $5,000
Since the annual depreciation is $5,000, the year 4 book value will be the initial cost minus the accumulated depreciation up to year 4.
Accumulated Depreciation Year 4 = Annual Depreciation * Years
Accumulated Depreciation Year 4 = $5,000 * 4
= $20,000
Book Value at the end of year 4 = Initial Cost - Accumulated Depreciation Year 4
Book Value at the end of year 4 = $30,000 - $20,000
= $10,000
Therefore, the book value of the truck at the end of year 4 will be $10,000.
For question b, to determine the depreciation taken in the first year, we need to calculate the number of days from the purchase date (January 1) to the end of the year (December 31) and then apply the same annual depreciation rate.
Number of days in the first year = 365 (since it is not a leap year)
To calculate the depreciation taken in the first year, we need to find the portion of the year for which the asset was owned:
Depreciation for first year = (Number of days owned / Total days in the year) * Annual Depreciation Expense
Number of days owned = 365 - 101 (since April 12 is the 101st day of the year)
Depreciation for first year = (264 / 365) * $5,000
Depreciation for first year = $3,616.44 (rounded to the nearest cent)
Therefore, the depreciation taken in the first year would be approximately $3,616.44.
Ater 5 years it is worth 5,000 so it lost 5,000 a year
30 - 4*5 = 10
I do not know what day of the year April 12 is, about 3*30 + 12
(that number /365) * 5000