RET Company uses the activity (units-of-production)method to depreciate long-term assets.The company owns a truck that cost $24,000.The truck is estimated to have a salvage value of $2,000 and a useful life of 200,000 miles.How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?
A)$6,500
B)$6,000
C)$5,500
D)$5,000

Question

Quizplus · Accepted Answer

Under the activity (units-of-production) method, depreciation expense is calculated based on the actual usage of the asset. In this case, the truck is estimated to have a useful life of 200,000 miles. Therefore, the per-mile depreciation rate can be calculated as follows:

Depreciation per mile = (cost - salvage value) / useful life in miles
Depreciation per mile = ($24,000 - $2,000) / 200,000 miles
Depreciation per mile = $0.11 per mile

To calculate the depreciation expense for the year in which the truck is driven 50,000 miles, we simply multiply the per-mile rate by the actual usage:

Depreciation expense = Depreciation per mile x Actual usage
Depreciation expense = $0.11 per mile x 50,000 miles
Depreciation expense = $5,500

Therefore, the correct answer is C) $5,500.

RET Company Uses the Activity (Units-Of-Production)method to Depreciate Long-Term Assets