Question

Kent Enterprises purchased a truck for $60,000 on January 1 of its first year. The company uses the units-of-activity method and it estimates that the truck’s useful life will be 100,000 miles. The truck will have an estimated salvage value of $10,000. The company drives the truck 25,000 miles in the first year and drives it 20,000 miles in the second year. How much accumulated depreciation will be reported on the company’s balance sheet as of the end of the second year?

Answer 1

Answer:

Accumulated depreciation on car at the end of year 2 will be 22,500

Explanation:

The unit-of use Method recognize depreciation base on the use of a cost driver. This cost driver could be miles, number of units produced, or others.

$\frac{Adquisition \: Value- \: Salvage \: Value}{cost \: driver}= Depreciation \: rate$

(60,000-10.000)/100,000 = .5 rate per mile

acumulated depreciation at year 2

$(year 1 + year 2) \times \: rate = \: accumulated \: depreciation$

25,000 + 20,000= 45,000 total miles driven

45,000 * 0.5 = 22,500