Question

A light car is purchased on January 1 at a cost of $25,700. It is expected to serve for eight years and have a salvage value of $3,000. It is expected to be used for 96,000 miles over its eight-year useful life. Using the units-of-production method, calculate the depreciation expense for the first and third years of use if the car is driven 20,000 miles in year 1 and 18,000 miles in year 3. Round interim calculations to two decimal places.

Answer 1

$4729.17

$4256.25

Step-by-step explanation:

Activity method based on output = (miles driven that year / total miles that can be driven) x (Cost of asset - Salvage value)

Year 1

(20,000 / 96,000) x ($25,700 - $3,000) = $4729.17

Year 3

(18,000 / 96,000) x ($25,700 - $3,000) = $4256.25