Final answer:
The book value of the dump truck at the end of year 2, calculated using straight line depreciation over a 10-year recovery period with a salvage value of $10,000, is $90,000.
Step-by-step explanation:
Calculating Book Value Using Straight Line Depreciation
To calculate the book value (BV) at year 2 for the dump truck using the straight line depreciation method, we must first determine the annual depreciation expense. The formula to calculate the annual depreciation using the straight line method is:
Annual Depreciation Expense = (Cost - Salvage Value) / Recovery Period
In this case:
Cost of the dump truck = $110,000
Salvage Value = $10,000
Recovery Period = 10 years
Using these values, we get:
Annual depreciation expense = ($110,000 - $10,000) / 10 = $10,000 per year
With the annual depreciation known, we can now find the book value after 2 years:
Book Value at Year 2 = Cost - (Annual Depreciation Expense × Number of years)
Therefore:
Book Value at Year 2 = $110,000 - ($10,000 × 2) = $110,000 - $20,000 = $90,000
The book value of the dump truck at the end of year 2 is $90,000.