Question

Lena Horn bought a Toyota Tundra on January 1 for $30,800 with an estimated life of 6 years. The residual value of the truck is $4,400. 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 Tundra was bought the first year on April 12, how much depreciation would be taken the first year?

Answer 1

The book value of a Toyota Tundra at the end of year 4, using the straight-line method of depreciation, is $13,200. If the Tundra was bought on April 12, the depreciation taken for the first year would be $3,100, accounting for partial year depreciation.

Step-by-step explanation:

The first part of this question involves calculating the depreciation expense of a Toyota Tundra using the straight-line method. The book value of the truck after a certain number of years can be determined based on its original cost, its estimated life, and its residual value. To calculate the annual depreciation expense:

Original Cost ($30,800) - Residual Value ($4,400) = Depreciable Amount ($26,400);

Depreciable Amount ($26,400) / Estimated Life (6 years) = Annual Depreciation Expense ($4,400).

To find the book value at the end of year 4, we multiply the annual depreciation expense by 4 years and subtract it from the original cost:

Original Cost ($30,800) - (Annual Depreciation Expense ($4,400) x 4 years) = Book Value at the end of year 4 ($13,200).

For the second part, when the Tundra was bought on April 12, we must account for partial year depreciation. The truck will depreciate for the remainder of the year which equates to 8.5 months. The depreciation expense for partial year:

(Annual Depreciation Expense / 12 months) x 8.5 months = Partial Year Depreciation Expense ($3,100).

Answer 2

The book value of the Toyota Tundra at the end of year 4 is $13,200, and the depreciation taken in the first year, assuming the purchase date of April 12, would be $3,133.

Step-by-step explanation:

The student's question pertains to the calculation of depreciation using the straight-line method and adjusting for partial year depreciation.

Book Value Calculation

To calculate the book value at the end of year 4, we use the formula:

Book Value = Cost of Asset - (Depreciation per Year × Number of Years)
Depreciation per Year = (Cost of Asset - Residual Value) / Useful Life

Plugging in the numbers for Lena Horn's Toyota Tundra gives us:

Depreciation per Year = ($30,800 - $4,400) / 6 = $4,400

Book Value at End of Year 4 = $30,800 - ($4,400 × 4) = $13,200

First Year Depreciation Calculation

When accounting for partial year depreciation, the depreciation expense is prorated based on the number of months the asset is in service. Since the Tundra was bought on April 12, it would be in service for approximately 8.5 months in the first year.

First Year Depreciation = Depreciation per Year × (Months of Service / 12)
First Year Depreciation = $4,400 × (8.5 / 12) = $3,133 (rounded to the nearest dollar)