# Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of$6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montello’s depreciation expense each year and what the truck’s book value will be each year after depreciation expense is recorded.

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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 8PB
Textbook Problem
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## Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of$6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montello’s depreciation expense each year and what the truck’s book value will be each year after depreciation expense is recorded.

To determine

Introduction:

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

To calculate :

Depreciation using units-of- production method.

### Explanation of Solution

Calculation of depreciation using double-declining balance method:

 Year Working Depreciation Expense ($) Accumulated Depreciation ($) Book Value ($) 1 ($26,000×0.152) 3,952 3,952 ($26,000−$3,952) 21,048 2 ($30,000×0.152) 4,560 8,512 ($21,048−$4,560) 16,488 3 ($40,000×0

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