Grimwood Trucking purchased a tractor trailer for $147,000.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 $21,000.If the truck is driven 90,000 miles in its first year, how much depreciation expense should Grimwood record?

Question

Quizplus · Accepted Answer

The depreciation expense is calculated using the units-of-activity method: (Cost - Residual Value) / Total Expected Miles = Depreciation per Mile. ($147,000 - $21,000) / 1,000,000 miles = $0.126 per mile. For 90,000 miles: 90,000 miles * $0.126 = $11,340.

Grimwood Trucking Purchased a Tractor Trailer for $147,000