Question

During the first two years, Supplies, Inc. drove the truck 15,000 and 22,000 miles, respectively, to deliver merchandise to its customers. The company originally purchased the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles, with an estimated residual value of $25,000, what amount of depreciation expense should Supplies, Inc. record in the second year using the activity-based method

Answer 1

Answer:

Depreciation Expense for the 2nd Year= $11,000`

Explanation:

Depreciation Expense = (Cost- Salvage Value)* Actual Activity Performed                

                                                                                  During the 2nd year

                                                                                                                                 

                                              Total Estimated Lifetime Activity Of the Asset

Depreciation Expense= ($ 175,000- $ 25,000) * 22,000/ 300,000

Depreciation Expense= ($ 150,000) * 22,000/ 300,000

Depreciation Expense= ( 3300,000,000/ 300,000

Depreciation Expense= $11,000

Depreciation Expense = (Cost- Salvage Value)* Actual Activity Performed                

                                                                                  During the 1st year

                                                                                                                                 

                                              Total Estimated Lifetime Activity Of the Asset

Depreciation Expense= ($ 175,000- $ 25,000) * 15,000/ 300,000

Depreciation Expense= ($ 150,000) * 15,000/ 300,000

Depreciation Expense= ( 2250,000,000/ 300,000

Depreciation Expense= $7500