Reference no: EM132989083

Question - This company purchased a semi-truck at the beginning of 2011 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2013, the company made major repairs of $30,000 to the truck that significantly extended the life of the asset. Starting with 2013, the truck has a remaining life of 5 years and a new salvage value of $8,000.

What is the truck's book value on January 1, 2013 (before major repairs)?

What amount should be recorded as depreciation expense each year starting in 2013?

When calculating depreciation for 2013, the company's accountant should:

a. ignore the change in life on the original cost of $100,000 and depreciate the additional $30,000 cost separately over its useful life.

b. expense the $30,000 and depreciate the original cost of $100,000 over its revised estimated total live of 7 years.

c. report the effect of the change in life as an expense on the income statement in 2011.

d. add the $30,000 to the book value at January 1, 2013, and then allocate the revised depreciation basis over the remaining adjusted useful life of 5 years.