Question

City View Limousine depreciates its stretch Hummer using the units-of-production depreciation method and bases usage on the miles driven per year. The estimated useful life of the vehicle is 250,000 miles. The vehicle was purchased for $115,000 and is not expected to have any residual value at the end of its life. It was driven a total of 40,000 miles during the first year of its useful life and 25,000 miles during the second year. What is the amount of Accumulated Depreciation recorded on the vehicle at the end of those two years?

a. $70,769
b. $29,900
c. $46,000
d. $18,400

Answer 1

The accumulated depreciation of the stretch Hummer after two years, calculated using the units-of-production method, is $29,900. This is found by multiplying the miles driven each year by the per mile depreciation rate, then summing the values for the first two years. The correct option is b.

Step-by-step explanation:

To calculate the amount of accumulated depreciation for City View Limousine's stretch Hummer using the units-of-production method, we need to follow a few steps. First, calculate the depreciation rate per mile by dividing the total cost by the estimated useful life in miles:

Depreciation rate per mile = Total cost / Estimated useful life in miles

For the first year:

• Depreciation rate per mile = $115,000 / 250,000 miles = $0.46 per mile
• Depreciation for first year = 40,000 miles * $0.46 per mile = $18,400

For the second year:

• Depreciation for second year = 25,000 miles * $0.46 per mile = $11,500

The total accumulated depreciation at the end of the second year is the sum of depreciation for both years:

Accumulated Depreciation = Depreciation for first year + Depreciation for second year

Accumulated Depreciation = $18,400 + $11,500 = $29,900

Therefore, the correct answer is b. $29,900.