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 the chevy truck was bought the first year on April 12, how much depreciation would be taken the first year?
To answer these questions, we need to understand the concept of straight-line depreciation. In straight-line depreciation, the asset's value is evenly distributed over its useful life.
(a) To find the book value of the truck at the end of year 4, we need to determine the annual depreciation.
Annual depreciation = (Initial cost - Residual value) / Useful life
In this case:
Initial cost = $30,000
Residual value = $5,000
Useful life = 5 years
Annual depreciation = (30,000 - 5,000) / 5 = $5,000
Now, we can calculate the book value at the end of year 4.
Book value at the end of year 4 = Initial cost - (Annual depreciation * Number of years)
Number of years = 4
Book value at the end of year 4 = 30,000 - (5,000 * 4) = $10,000
Therefore, the book value of the truck at the end of year 4 will be $10,000.
(b) To calculate the depreciation taken in the first year, we need to know the exact period from the purchase date to the end of the first year.
If the truck is bought on April 12, we assume that the first year is considered a complete year from April 12 to April 11 of the following year.
Since the truck's useful life is 5 years, the annual depreciation is $5,000.
However, in the first year, only a portion of the annual depreciation will be taken because it is not a full year. We need to calculate the depreciation for the period April 12 to December 31.
The number of months from April 12 to December 31 is 8 months.
The depreciation for the first year can be calculated as:
Depreciation for the first year = (Annual depreciation / 12) * Number of months
Depreciation for the first year = (5,000 / 12) * 8 = $3,333.33 (rounded to two decimal places)
Therefore, the depreciation taken in the first year would be approximately $3,333.33.