Question

Splish Brothers Inc. purchased a tractor trailer for $168000, Splish Brothers uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1000000 miles over its 12-year useful life. Salvage value is estimated to be $24000. If the truck is driven 76000 miles in its first year, how much depreciation expense should Splish Brothers record?

a. $10944
b. $10197
c. $12388
d. $12768

Answer 1

According to the units-of-activity method, the depreciation expense for Splish Brothers Inc.'s truck driven 76,000 miles in its first year would be $10,944.

Step-by-step explanation:

To calculate the depreciation expense using the units-of-activity method, we need to determine the depreciation cost per mile. The formula to calculate depreciation cost per mile is: (Initial Cost - Salvage Value) / Total Estimated Miles. In this case, the initial cost is $168,000, the salvage value is $24,000, and the total estimated miles over its useful life is 1,000,000 miles. The depreciation cost per mile is ($168,000 - $24,000) / 1,000,000 = $0.144 per mile.

To calculate the depreciation expense for the first year, we multiply the depreciation cost per mile by the number of miles driven in the first year. In this case, the truck was driven 76,000 miles in the first year. Therefore, the depreciation expense for the first year would be $0.144 * 76,000 = $10,944.