Paul Hauling has a fleet of 10 large trucks that cost a total of $1,410,000. The fleet is expected to provide 1,000,000 miles of transportation during an estimated 10-year life, and be sold for 10% of the original cost at the end of that time. If the fleet traveled 125,000 miles in the current twelve-month period, what would be the depreciation expense under the straight-line (SL) and units-of-production (U-of-P) methods?
A) SL = $158,625 & U-of-P = $141,000
B) SL = $141,000 & U-of-P = $158,625
C) SL = $126,900 & U-of-P = $176,250
D) SL = $126,900 & U-of-P = $158,625

Question

Quizplus · Accepted Answer

First, let's calculate the depreciation rate per year:
Depreciation = (Cost - Salvage Value) / Estimated life
Depreciation = ($1,410,000 - 0.1($1,410,000)) / 10 = $126,900 per year

Using the straight-line method, the annual depreciation expense is simply the depreciation per year divided by the estimated life:
SL Depreciation = $126,900 / 10 = $12,690 per year
For the current year, the depreciation expense is:
SL Depreciation Expense = ($12,690 / 1,000,000) x 125,000 = $1,586.25

Using the units-of-production method, we need to calculate the depreciation rate per mile:
Depreciation Rate = (Cost - Salvage Value) / Estimated total miles
Depreciation Rate = ($1,410,000 - 0.1($1,410,000)) / 1,000,000 = $1.269 per mile
For the current year, the depreciation expense is:
U-of-P Depreciation Expense = Depreciation Rate x Miles Traveled
U-of-P Depreciation Expense = $1.269 x 125,000 = $158,625

Therefore, the correct answer is D, SL = $126,900 & U-of-P = $158,625.

Paul Hauling Has a Fleet of 10 Large Trucks That