Question

Paul Company purchased a dump truck for $27,000. In addition, Paul Company paid freight charges of $500, and $700 to paint the company's logo on the truck. The estimated salvage value and useful life are $1,200 and 5 years, respectively. How much is the accumulated depreciation under the straight-line method after three years?

Answer 1

Accumulated depreciation after 3 years = $15,780

Step-by-step explanation:

Purchase price of the asset = $27,000

Freight charges paid = $500 will be added to cost as this is necessary to bring the asset in for functioning.

Paint of company's logo = $700 will not be added as is not essential for functioning of asset, and does not increase future economic benefits.

Therefore, net cost = $27,000 + $500 = $27,500

Salvage value = $1,200

Amount to be depreciated = $27,500 - $1,200 = $26,300

Useful life = 5 Years

Depreciation each year as per straight line = $26,300/5 = $5,260

Accumulated depreciation after 3 years = $5,260
`*` 3 = $15,780