   # A tractor acquired at a cost of $420,000 has an estimated residual value of$30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year. ### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

#### Solutions

Chapter
Section ### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 10, Problem 2PEB
Textbook Problem
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## A tractor acquired at a cost of $420,000 has an estimated residual value of$30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year.

(a)

To determine

Determine the depreciable cost of the tractor.

### Explanation of Solution

Unit-of-activity Method: Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:

Depreciation per unit = CostResidual valueEstimated units of useful life

Depreciation Expense = Depreciation per unit × Usage

Determine the depreciable cost of the tractor

(b)

To determine

Determine the depreciation rate.

(c)

To determine

Determine the units-of-activity depreciation for the year.

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