Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000 . The truck had an estimated life of 6 years and an estimated residual value of $24,000 . On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new salvage value of $8,000 . Royal uses the
straight-line depreciation method. When calculating depreciation for 2016, Royal should
a. add the $20,000 to the book value at December 31, 2015 and then allocate the revised basis over the remaining adjusted useful life of 5 years.
b. report the effect of the change in life as an expense on the income statement in 2015.
c. ignore the change in life on the original cost of $60,000 and depreciate the additional $20,000 cost separately over its useful life.
d. expense the $20,000 and depreciate the original cost of $60,000 over its revised estimated total live of 7 years.
a
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