On January 1, 2019, Wasson Company purchased a delivery vehicle costing $38,000. The vehicle has an estimated 7-year life and a $3,000 residual value. What is the vehicle's book value as of December 31, 2020, assuming Wasson uses the straight-line depreciation method

The answer is $28,000

Explanation:

straight-line depreciation method =

( original cost of the asset minus salvage/residual value) ÷ number of useful life

Cost of the asset is $38,000

Residual value is $3,000

Number of use life is 7 years

($38,000 - $3,000) ÷ 7 years

= $5,000

Depreciation is $5,000 per year.

January 1, 2019 through

December 31, 2020 is 2 years.

That means accumulated depreciation is $10,000 ( $5,000 x 2 years)

Book value = cost of the asset - accumulated depreciation

$38,000 - $10,000

Book value = $28,000