Grimwood Trucking purchased a tractor trailer for $196,000. Grimwood uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Residual value is estimated to be $28,000. If the truck is driven 90,000 miles in its first year, how much depreciation expense should Grimwood record?

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for the first year, we need to first calculate the depreciation rate per mile:
Depreciable cost = Cost - Residual value = $196,000 - $28,000 = $168,000
Depreciation rate per mile = Depreciable cost / Total miles = $168,000 / 1,000,000 miles = $0.168 per mile

Then we can calculate the depreciation expense for the first year:
Depreciation expense = Depreciation rate per mile x Miles driven in the first year = $0.168 x 90,000 miles = $15,120

Therefore, the answer is C.

Grimwood Trucking Purchased a Tractor Trailer for $196,000