A contractor purchased a truck for $55,000. After 4 years using straight-line depreciation with no salvage value over 8 years, what is the current book value?
Correct Answer
C) $27,500
Annual depreciation = $55,000 ÷ 8 years = $6,875 per year. After 4 years: Total depreciation = $6,875 × 4 = $27,500. Book value = $55,000 - $27,500 = $27,500.
Why This Is the Correct Answer
Using straight-line depreciation, the truck depreciates evenly over its 8-year useful life. The annual depreciation is $55,000 ÷ 8 = $6,875 per year. After 4 years, total accumulated depreciation is $6,875 × 4 = $27,500. The book value equals the original cost minus accumulated depreciation: $55,000 - $27,500 = $27,500.
Why the Other Options Are Wrong
Option A: $48,125
This represents approximately 87.5% of original value, which would only account for about 1 year of depreciation, not the full 4 years specified in the problem.
Option D: $41,250
This amount ($13,750) represents only 2 years of depreciation ($6,875 × 2), not the 4 years that have actually passed.
Memory Technique
Remember 'SLiDE': Straight-Line Depreciation Equals (Cost ÷ Life) × Years, then subtract from original cost. Also remember that with no salvage value, at the halfway point of useful life, book value equals half the original cost.
Reference Hint
Look up 'Depreciation Methods' or 'Straight-Line Depreciation' in the business management or accounting section of your contractor reference manual.
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