Question

During 2010 and 2011, CBA Inc. drove their truck 15,000 and 22,000 miles, respectively, to deliver supplies to their customers. If they originally purchased the truck at the beginning of 2010 for $175,000 and the truck has an estimated life of 10 years and 320,000 miles with an estimated residual value of $15,000, what amount of depreciation expense should CBA record in 2011 using the activity method?

Answer 1

Answer:

$11,000

Explanation:

The computation of the depreciation expense for the second year is shown below:

For this computation, first we have to determine depreciation rate per mile which is presented below:

= (Original cost - residual value) ÷ (estimated miles)  

= ($175,000 - $15,000) ÷ ($320,000 miles)

= ($160,000) ÷ ($320,000 miles)  

= $0.5 per miles

Now for the 2011 year, it would be  

= Production units in second year × depreciation per miles

= 22,000 miles × $0.5

= $11,000