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 company chosen the straight-line depreciation method?

Explanation / Answer

Cost of Truck

26500

Estimated Useful Life in years

5

Estimated Useful Life in Milage

90000

Expected Salvage

4800

Depreciable Cost= Cost - Salvage Value

                                   = $26500-$4800

                                   =$21700

Depreciation Cost Per unit =Depreciable Cost/Total Units of Activity

                                                       = $21700/90000

                                                        = .24

Year

Units of Activity X

Depreciation per Unit         =

Annual Depreciation Exp.

End of Year

Accumulated           Book Value

Depreciation    

1

$16000

$.24

$3840

$3840

$22660

2

$18200

$.24

$4368

$8208

$18292

Depreciable Cost= Cost - Salvage Value

                                   = $26500-$4800

                                   =$21700

Depreciation SLM =Depreciable Cost/Useful life in years

                                                       = $21700/5

                                                        = $4340

Year

Annual Depreciation Exp.

End of Year

Accumulated           Book Value

Depreciation    

1

$4340

$4340

$22160

2

$4340

$8680

$17820

Accumulated Depreciation at the end of 2nd Year

Under Milage Base Deprecaition

$8208

Under Stright Line Depreciation

$8680

Cost of Truck

26500

Estimated Useful Life in years

5

Estimated Useful Life in Milage

90000

Expected Salvage

4800

Depreciable Cost= Cost - Salvage Value

                                   = $26500-$4800

                                   =$21700

Depreciation Cost Per unit =Depreciable Cost/Total Units of Activity

                                                       = $21700/90000

                                                        = .24

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.