The <u>correct answer</u> is:

$5,000.

Explanation:

When it is first purchased, the depreciation expense is calculated using the formula:

$\text{Depreciation expense}=\frac{\text{Cost}-\text{Salvage Value}}{\text{Useful Life}}$

The cost was $23,000; the salvage value was $3,000; and the useful life was 8 years:

$\text{Depreciation Expense}=\frac{23000-3000}{8}=\frac{20000}{8}= \$2500$

This means the value of the vehicle depreciates $2500 per year.

After 4 years, the vehicle would depreciate 2500(4) = $10,000.

This makes the new value $23000-$10000 = $13000.

Reevaluating the depreciation expense at this point, we use $13000 for the "cost" (current value), $3000 is still the salvage value, and now the total useful life was 6; we take 4 off of this, since it has already been 4 years:

$\text{Depreciation Expense}=\frac{13000-3000}{6-4}=\frac{10000}{2}= \$5000$

The depreciation expense in year 5 is $5,000.

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