Question

On January 1, 2018, McCallen Motors purchased a new company van for $42,000. They estimate that the garage will last 4 years, and at the end of the 4 years it will have a salvage value of $6,000. McCallen uses straight-line depreciation.

a. What is the depreciation expense each year for the van?

b. What is the book value of the van at the end of 2019?

c. At the end of the 4 years, McCallen sold the van for $4,500. What is the gain or loss on the sale?

Answer 1

· Requirement [a]

A	Cost	$            42,000.00
B	Residual Value	$              6,000.00
C=A - B	Depreciable base	$            36,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$              9,000.00

Depreciation expense each year = $ 9000

· [b]
Book Value at the end of 2019 = $ 42000 cost – ($9000 x 2 year)
= 42000 – 18000
= $ 24,000 [Answer]

· [c]
Gain (Loss) on sale = Cash received on sale – residual value
= $ 4500 - $ 6000
= $ (1500)

Answer: Loss on sale = $ (1,500)