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.

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

	a.	$42,000
	b.	$9,000
	c.	$36,000
	d.	$10,500

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

	a.	$ 36,000
	b.	$24,000
	c.	$ 42,000
	d.	$6,000

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

	a.	a loss of $37,500.
	b.	a gain of $4,500.
	c.	a gain of $1,500.
	d.	a loss of $1,500.

Answer 1

8)Depreciation expense each year for the van is as follows:

Depreciation p.a = (Cost - Salvage Value)/ Useful life)

= ($42,000 - $6,000)/ 4 Years

= $36,000/ 4

= $9,000

Depreciation p.a =   $9,000

So correct answer is option(b) or $9,000

9)The book value of the van at the end of 2019 is calculated below:

Date		$
January 1, 2018	Cost	42,000
	Depreciation	( 9,000)
Dec.31,2018	Book Value	33,000
	Depreciation	( 9,000)
Dec.31,2019	Book Value	24,000

The book value of the van at the end of 2019 is $24,000

So correct answer is option(b) or $24,000

10)The gain or loss on the sale on Forth year is calculated below:

Date		$
January 1, 2018	Cost	42,000
	Depreciation	( 9,000)
Dec.31,2018	Book Value	33,000
	Depreciation	( 9,000)
Dec.31,2019	Book Value	24,000
	Depreciation	( 9,000)
Dec.31,2020	Book Value	15,000
	Depreciation	( 9,000)
Dec.31,2021	Book Value	6,000
	Sale	(4,500)
	Loss On Sale	1,500

So correct answer is option(d) or loss of $1,500