A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000 after 120,000 miles of service.Using the units-of-production method,what is the first year's depreciation if the van is driven 24,000 miles?
A)$1,200
B)$4,200
C)$7,200
D)$12,000

Question

Quizplus · Accepted Answer

To calculate the depreciation using units of production method, we need to determine the depreciation per mile.

Total miles the vehicle is expected to be driven = 120,000 - 0 salvage miles = 120,000 miles

Depreciation per mile = (Cost of the van - Salvage value) / Total number of miles the vehicle is expected to be driven = ($42,000 - $6,000) / 120,000 miles = $0.30/mile

Depreciation for the first year = deprecation per mile x number of miles driven in the first year = $0.30/mile x 24,000 miles = $7,200

Therefore, the first year's depreciation is $7,200. The best choice is (C).

A Company Purchased a Van at a Cost of $42,000