Question

Tasty Subs acquired a delivery truck on October 1, 2021, for $21,500. The company estimates a residual value of $2,500 and a six-year service life. It expects to drive the truck 100,000 miles. Actual mileage was 5,000 miles in 2021 and 19,000 miles in 2022.

Required:
Calculate depreciation expense using the activity-based method for 2018 and 2019, assuming a December 31 year-end.

Answer 1

The depreciation expenses will be "950 and 3610". A further explanation is given below.

Step-by-step explanation:

The given values are:

Cost,

= $21,500

Salvage value,

= $2,500

Asset's total life,

= $100,000

Now,

The Depreciation rate will be:

=
`( (Cost - Salvage \ value) )/(Asset's \ total \ life)`

On putting the values, we get

=
`( (21500 - 2500) )/(100000)`

=
`(19000)/(100000)`

=
`0.19`

So,

For the year 2021, the depreciation expense will be:

=
`Depreciation \ Rate* Actual \ Mileage`

=
`0.19* 5000`

=
`950`

For the year 2022, the depreciation expense will be:

=
`Depreciation \ Rate* Actual \ Mileage`

=
`0.19* 19000`

=
`3610`