Newson's Courier Service recently purchased a new delivery van for $29,000. The van is estimated to have a useful life of 8 years or 250,000 kilometres. The van will have a residual value of $1,000. The company uses the units-of-production method of depreciation. Assuming the van travelled 36,000 kms. during the first year, what is the depreciation expense for the van in year 1?

Question

Quizplus · Accepted Answer

First, calculate the total estimated production for the van:
250,000 km - $1,000 (residual value) = $28,000 total depreciation

Next, calculate the depreciation rate per unit of production:
$28,000 / 250,000 km = $0.112 per km

Finally, calculate the depreciation expense for year 1 based on the distance travelled:
36,000 km x $0.112/km = $4,032

Therefore, the depreciation expense for the van in year 1 is $4,032. Therefore, choice C is the correct answer.

Newson's Courier Service Recently Purchased a New Delivery Van for $29,000