Question

Smith Company purchased an asset for 40,000. It costs 2,000 in freight costs to get it to their loading dock. They also had 3,000 in installation costs. Salvage value is estimated to be 4,000 and the useful life is 10 years. What is net book value at the end of 3 years(using straight line).

A. 31,300

B. 28,700

C. 32,700

D. 30,600

Answer 1

Purchase price = $40,000

Freight cost = $2,000

Installation cost = $3,000

Salvage value = $4,000

Useful life = 10 years

Cost of asset = Purchase price+ Freight cost+Installation cost

= 40,000+2,000+3,000

= $45,000

Annual depreciation expense = (Cost of asset - Salvage value)/Useful life

= (45,000-4,000)/10

= 41,000/10

= $4,100

Depreciation expense for the end of year 3 = Annual depreciation expense x 3

= 4,100 x 3

= $12,300

Book value at the end of 3 years = Cost of asset- Depreciation expense for the end of year 3

= 45,000-12,300

= $32,700

Correct option is C.

Kindly comment if you need further assistance.

Thanks‼!