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Units-of-activity depreciation A truck acquired at a cost of $69,000 has an estimated residual value of $12,000, has an estimated useful life of 300,000 miles, and was driven 77,000 miles during the year. Determine (A) the depreciable cost, (B) the depreciation rate, and (C) the units-of-activity depreciation for the year.

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Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

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Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 9, Problem 9.2BE
Textbook Problem
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Units-of-activity depreciation

A truck acquired at a cost of $69,000 has an estimated residual value of $12,000, has an estimated useful life of 300,000 miles, and was driven 77,000 miles 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

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

To determine: the depreciable cost of the truck.

Explanation of Solution

Determinethe depreciable cost of the truck.

Cost of the truck= $69,000

Residual value of the truck = $12,000.

DepreciableCost =Cost

(B)

To determine
the depreciation rate.

(C)

To determine
the units-of-activity depreciation for the year.

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Chapter 9 Solutions

Financial & Managerial Accounting
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