Question

Linton Company purchased a delivery truck for $34,000 on July 1, 2022. The truck has an expected salvage value of $2,000, and is expected to be driven 80,000 miles over its estimated useful life of 8 years.

Compute the depreciation expense using the units-of-activity method assuming 15,000 hours are used in 2022.

Answer 1

To compute the depreciation expense of the delivery truck using the units-of-activity method, subtract the salvage value from the purchase price, divide by expected miles to get the rate per mile, then multiply by miles used in 2022 to get a total of $6,000 depreciation expense.

Step-by-step explanation:

The student's question pertains to calculating the depreciation expense for a delivery truck using the units-of-activity method. This method allocates the cost of an asset over its useful life based on its actual usage rather than the passage of time. To compute the depreciation expense, we subtract the salvage value from the purchase price to determine the total depreciable amount. We then divide this amount by the expected total units of activity (in this case, miles) to find the depreciation rate per mile. Finally, we multiply the depreciation rate per mile by the number of miles driven in the first year to find the depreciation expense for the year 2022.

The calculation steps are as follows:

1. Calculate the total depreciable amount: $34,000 (purchase price) - $2,000 (salvage value) = $32,000.
2. Compute depreciation rate per unit: $32,000 total depreciable amount ÷ 80,000 expected miles = $0.40 per mile.
3. Calculate depreciation expense for 2022: $0.40 per mile × 15,000 miles driven in 2022 = $6,000.

Therefore, the depreciation expense for the delivery truck for the year 2022 is $6,000 using the units-of-activity method.