Question

Blue Corporation purchased a truck at the beginning of 2020 for $61,000. The truck is estimated to have a salvage value of $2,440 and a useful life of 195,200 miles. It was driven 28,060 miles in 2020 and 37,820 miles in 2021. Compute depreciation expense using the units-of-production method for 2020 and 2021.

Depreciation expense for 2020
Depreciation expense for 2021

Answer 1

Depreciation expense for 2020 = $8,418

Depreciation expense for 2021 = $11,346

Step-by-step explanation:

Depreciation expense using the units-of-production method is determined as follows :

Depreciation expense = Depreciation rate x annual usage

where,

Depreciation rate = (Cost - Salvage Value) ÷ Estimated usage

= ($61,000 - $2,440) ÷ 195,200 miles

= $0.30 per mile

thus,

Depreciation expense for 2020

Depreciation expense = $0.30 per mile x 28,060 miles

= $8,418

Depreciation expense for 2021

Depreciation expense = $0.30 per mile x 37,820 miles

= $11,346