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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Units-of-Production Depreciation

Refer to the information for Irons Delivery Inc. above. Irons uses the units-of-production method of depreciation. Irons expects the truck to run for 160,000 miles. The actual miles driven in 2019 and 2020 were 40,000 and 36,000, respectively.

Required:

Prepare the journal entry to record depreciation expense for 2019 and 2020.

To determine

The Cost of the fixed asset represents the capability of assistance an asset can give. Except for Land, other assets’ potential declines over the useful life as much as an asset is utilized in the operations of the company.

When the drop in an assets’ service efficiency is corresponding to the usage of the asset and such asset’s usage can be measured then depreciation expense can be computed using the units-of-production depreciation method.

To calculate:

To determine depreciation using Units-of-Production Method.

Explanation

Depreciation cost per unit = (Cost- Residual Value)/Expected Usage of the Asset

Units-of-production Expense = Depreciation Cost per unit *Actual Usage of the Asset

Depreciation cost per unit

= ($45000-$3000)/160000 miles

=0.2625 per mile

Depreciation for 2019

= 0.2625*40000 miles

=10500

Depreciation for 2020

=0.2625*36000

=9450

Journal Entries in the books of Irons Delivery Inc

Date Particulars Debit Credit
31.12...

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