Question

Units-of-Production Depreciation Irons Delivery Inc. purchased a new delivery truck for $42,000 on January 1, 2019. The truck is expected to have a $2,000 residual value at the end of its 5-year useful life. Irons uses the units-of-production method of depreciation. Irons expects the truck to run for 150,000 miles. The actual miles driven in 2019 and 2020 were 40,000 and 36,000, respectively.
Required: Prepare the journal entry to record depreciation expense for 2019 and 2020. Round your answers to the nearest dollar. Do not round intermediate calculations.

Answer 1

Depreciation Expense  for 2019 is  $10,800 while Depreciation Expense for 2020 is $9,720

Rate of Depreciation = (Cost - Residual Value) ÷useful life  

                                = ($42,000 - $2,000) ÷ 150,000 miles  

                                 = $0.27

Depreciation Expense = Rate of Depreciation x unit of miles during the period

So,  

Depreciation Expense  for 2019 = $0.27 x 40, 000  

                                                =   $10,800

Depreciation Expense for 2020 = $0.27 x 36,000  

                                               = $9,720

Journal entries to record depreciation expense

Date       Account titles and explanation      Debit                 Credit

2019          Depreciation Expense                   $10,800

    Accumulated Depreciation                                                $10,800

Date       Account titles and explanation      Debit                 Credit

2020        Depreciation Expense                   $9,720

    Accumulated Depreciation                                                $9,720

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