Question

Danford Trucking purchased a tractor trailer for $147,000. Danford uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $21,000. If the truck is driven 80,000 miles in its first year, how much depreciation expense should Danford record?

Answer 1

Danford Trucking should record a depreciation expense of $10,080 for the first year the truck is driven 80,000 miles using the units-of-activity depreciation method.

Step-by-step explanation:

To calculate the depreciation expense using the units-of-activity method, you need to first subtract the salvage value from the purchase price to find the total depreciable cost. Then, divide the depreciable cost by the total expected units of activity (in this case, miles) to determine the depreciation expense per unit. Multiply the depreciation per unit by the actual activity for the period to find the depreciation expense for that period.

Step-by-Step Calculation

1. Subtract the estimated salvage value from the purchase price to determine the depreciable amount: $147,000 (cost) - $21,000 (salvage value) = $126,000 (depreciable cost).
2. Divide the depreciable cost by the total expected mileage to calculate the depreciation rate per mile: $126,000 / 1,000,000 miles = $0.126 per mile.
3. Multiply the depreciation rate per mile by the actual miles driven in the first year: $0.126 x 80,000 miles = $10,080.

So, Danford Trucking should record a depreciation expense of $10,080 for the first year the truck is driven 80,000 miles.

Answer 2

Depreciation in first year = $10,080

Step-by-step explanation:

Provided cost of tractor = $147,000

Salvage value = $21,000

Value to be Depreciated = $126,000

Provided method of depreciation = units of activity method.

Total units = 1,000,000 miles

Depreciation per mile = $126,000/1,000,000 = $0.126 per mile

Miles driven in first year = 80,000

Depreciation in first year = 80,000
`*` $0.126 = $10,080