Montello Inc. purchases a delivery truck for $15,000. The truck has a salvage value of$3,000 and is expected to be driven for 120,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 23,000 miles. Calculate the annual depreciation expense.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 4EA
Textbook Problem
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Montello Inc. purchases a delivery truck for $15,000. The truck has a salvage value of$3,000 and is expected to be driven for 120,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 23,000 miles. Calculate the annual depreciation expense.

To determine

Introduction:

Depreciation expense refers to the amount which leads to reduction in an asset because of its use. It is deducted from gross profit.

To calculate:

Depreciation using units-of- production method.

Explanation of Solution

Calculation of depreciation for year 1:

Formula to calculate depreciation using unit-of-production method is:

Depreciation =Depreciation Per Mile × Number of Miles in a Year

Substitue $0.10 for depreciation per mile and 23,000 miles for number of miles in a year in the above formula. Depreciation =$0

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