Question

Marin Inc. purchased a tractor trailer for $138000. Marin uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1000000 miles over its 10-year useful life. Salvage value is estimated to be $16000. If the truck is driven 80000 miles in its first year, how much depreciation expense should Marin record?

Answer 1

Answer:

$9,760

Explanation:

For computing the depreciation expense first we have to find out the depreciation rate which is shown below:

The computation of the depreciation per miles under the units-of-production method is shown below:

= (Original cost - residual value) ÷ (estimated miles)

= ($138,000 - $16,000) ÷ (1,000,000 miles)

= ($122,000) ÷ (1,000,000 miles)

= $0.122 per miles

Now for the first year, it would be

= Miles driven in first year × depreciation per miles

= 80,000 miles × $0.122 per miles

= $9,760