Question

A company purchased a van at a cost of $42,000 and expects it can be sold for $6,000 after 120,000 miles of service. Assuming the units-of-production method is used and the van is driven for 24,000 miles during the first year, the depreciation at the end of the first year would be

Answer 1

Answer:

Annual depreciation= $7,200

Explanation:

Giving the following information:

A company purchased a van for $42,000 and expects it can be sold for $6,000 after 120,000 miles of service.

To calculate the annual depreciation, we need to use the following formula:

Annual depreciation= [(original cost - salvage value)/useful life of production in miles]*miles driven

For 24,000 miles:

Annual depreciation= [(42,000 - 6,000) / 120,000]*24,000

Annual depreciation= 0.3*24,000

Annual depreciation= $7,200