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A light truck is purchased on January 1 at a cost of $35,000. It is expected to serve for eight years and have a salvage value of $5,000. It is expected to be used for 100,000 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 truck is driven 20,000 miles in year 1 and 24,000 miles in year 3.

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Answer:

Explanation:

The computation of the depreciation per units or bolts under the units-of-production method is shown below:

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

= ($35,000 - $5,000) ÷ (100,000 miles)

= ($30,000) ÷ (100,000 miles)

= $0.3 per mile

For the first year, it would be

= Miles in first year × depreciation per mile

= 20,000 miles × $0.3

= $6,000

And, For the third year, it would be

= Miles in third year × depreciation per mile

= 24,000 miles × $0.3

= $7,200

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