Question

Dinkins Company purchased a truck that cost $75,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $11,500. If the truck is driven 32,500 miles in the current accounting period, what would be the amount of depreciation expense for the year? (Do not round intermediate calculations.)

a) $20,638.
b) $24,375.
c) $12,700.
d) $30,000.

Answer 1

Annual depreciation= $20,638

Step-by-step explanation:

Giving the following information:

Purchase cost= $75,000

Salvage value= $11,500

The company expected to drive the truck 100,000 miles.

The truck is driven 32,500 miles

To calculate the depreciation expense under the units of activity method, we need to use the following formula:

Annual depreciation= [(original cost - salvage value)/useful life of production in miles]*miles driven

Annual depreciation= [(75,000 - 11,500)/100,000] * 32,500

Annual depreciation= $20,638