Lena Horn bought a Toyota Tundra 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 tyhe chevy truck was bought the first year on April 12, how much depreciation would be taken the first year?
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To calculate the book value of the truck at the end of year 4, we need to determine the annual depreciation expense first. The straight-line method of depreciation assumes that the depreciation expense is the same amount each year.
(a) The annual depreciation expense can be calculated using the formula:
Depreciation expense = (Cost - Residual value) / Useful life
In this case, the cost of the Toyota Tundra is $30,000, the residual value is $5,000, and the useful life is 5 years.
Depreciation expense = ($30,000 - $5,000) / 5 = $5,000
To determine the book value at the end of year 4, we subtract the accumulated depreciation from the initial cost:
Book value at the end of year 4 = Cost - (Depreciation expense x Number of years)
Book value at the end of year 4 = $30,000 - ($5,000 x 4) = $30,000 - $20,000 = $10,000
Therefore, the book value of the truck at the end of year 4 is $10,000.
(b) If the Chevy truck was bought in the first year on April 12, we need to calculate the depreciation expense for a partial year.
The total depreciation expense for the first year can be calculated using the formula:
Depreciation expense = (Cost - Residual value) / Useful life
In this case, the cost of the Chevy truck is not given, so we cannot provide an exact figure. However, we can still calculate the depreciation expense for the partial first year.
Assuming the Chevy truck has the same purchase cost and useful life as the Toyota Tundra, we can calculate the number of days the truck was owned in the first year by subtracting the purchase date from December 31st.
Days owned in the first year = 365 days - 1st January to 12th April (from the given purchase date)
Once we have the number of days owned, we can calculate the depreciation expense for the first year by using the formula mentioned earlier.
Remember, the information provided does not specify the purchase cost of the Chevy truck, so the exact depreciation amount cannot be determined.