A contractor purchased a truck for $65,000. After 4 years of use, the accumulated depreciation is $32,000. What is the book value of the truck?
Correct Answer
B) $33,000
Book value equals the original cost minus accumulated depreciation. $65,000 - $32,000 = $33,000. This represents the asset's value on the company's books after accounting for depreciation.
Why This Is the Correct Answer
Book value is calculated using the fundamental accounting equation: Original Cost - Accumulated Depreciation = Book Value. The truck was purchased for $65,000 and has accumulated $32,000 in depreciation over 4 years. Therefore, the book value is $65,000 - $32,000 = $33,000. This represents the current value of the asset as recorded on the company's financial statements.
Why the Other Options Are Wrong
Option C: $65,000
This answer ($97,000) incorrectly adds the original cost and accumulated depreciation together ($65,000 + $32,000), which is mathematically incorrect and doesn't represent any meaningful accounting value.
Option D: $32,000
This answer ($32,000) represents the accumulated depreciation amount, not the book value. This is a common mistake where test-takers confuse the depreciation expense with the remaining asset value.
Memory Technique
Think 'Book value = what's LEFT' - you start with the original cost and subtract what's been used up (depreciation) to find what value is left on the books
Reference Hint
Look up 'Asset Depreciation' or 'Book Value Calculations' in the accounting/business management section of your contractor reference manual
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