   Chapter 18, Problem 4CE

Chapter
Section
Textbook Problem

Grandorf Company replaced the engine in a truck for $8,000 and expects the new engine will extend the life of the truck two years beyond the original estimated life. Related information is provided below. Cost of truck$65,000 Salvage value 5,000 Original estimated life 6 years  The truck was purchased on January 1, 20-1. The engine was replaced on January 1, 20-6. Using straight-line depreciation, compute depreciation expense for 20-6.

To determine

Ascertain the depreciation expense of the truck of Company G for the year 20-6, using straight-line depreciation.

Explanation

Straight-line method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset, is referred to as straight-line method.

Formula for straight-line depreciation method:

Depreciation expense}=Depreciable cost   ×    Depreciation rate(Cost–Salvage value)×1Estimated useful life

Ascertain the depreciation expense of the truck of Company G for the year 20-6, using straight-line depreciation

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