Question

A compact minivan costs $16,000 with a residual value of $1,000. It has an estimated useful life of five years. If the minivan was bought on July 3, what would be the book value at the end of Year 1 using straight-line rate? A. $14,500 B. $16,000 C. $1,500 D. $12,500

Answer 1

A. $14,500

Explanation:

The van depreciates ($16000 -1000 = $15000 in 5 years, so $3000 per year. It will be assumed to depreciate half that amount in half a year, so will be worth $1500 less than $16000 at the end of the first calendar year. The book value will be $14,500.