N January 1, 2016, Wasson Company purchased a delivery vehicle costing $52,400. The vehicle has an estimated 7-year life and a $4,800 residual value. What is the vehicle's book value as of December 31, 2017, assuming Wasson uses the straight-line depreciation method

$38,800.

Explanation:

Books value, also known as carrying value, is the amount at which Vehicle is stated on the face of balance sheet. It is calculated by deducting Accumulated Depreciation from the cost of vehicle, where accumulated depreciation is the amount of depreciation expense accumulated.

The company uses a straight-line depreciation method. This method allocates the cost of vehicle to P&L evenly. The formula to calculate the depreciation expense using straight-line depreciation is:

          Depreciation Expense p.a. = [ Cost - Residual Value] / Useful Life

⇒ Annual depreciation is $6,800.

We are required to calculate the book value two years later from the date of purchase. So the accumulated depreciation account will have depreciation expense of two years which is $13,600 (6,800 * 2).

⇒ The book value as of Dec. 31, 2017 is $38,800 (52,400 - 13,600).

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