Sexton Company acquired a truck for use in its business for $26,500 in a cash tr

Question

Sexton Company acquired a truck for use in its business for $26,500 in a cash transaction. The truck is expected to be used over a five-year period, will be driven approximately 18,000 miles per year, and is expected to have a value at the end of the five years of $4,800.

a. Compute the amount of depreciation that will be taken in the first two years of the truck's useful life if the actual miles driven are 16,000 and 18,200, respectively. (Round the depreciation per mile to the nearest whole cent.

b. How does the amount of accumulated depreciation at the end of the second year compare with what it would been had the compny chosen the straight line depreciation method?

Explanation / Answer

Value of truck 26500 life of asset 5 Salvage value 4800 No. of miles per year 18000 Total miles 90000 (a) miles per year year miles depreciation 1 16000 3858 2 18200 4388 8246 (b) Straight Line method year depreciation 1 4340 2 4340 8680 Accumulated Depreciation as per straight line method is more than the depreciation as per miles run.

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