On January 1,Charlie Co.purchased a truck for $50,000 which has an estimated productive life of 100,000 miles.Its residual value is $5,000.During the first full year of its useful life,the company drove the truck 25,000 miles.Its depreciation expense for the year using the units of production method is:
A) $ 9,000.
B) $10,000.
C) $11,250.
D) $12,500.

Question

Quizplus · Accepted Answer

To calculate depreciation expense using units of production method, we need to follow the given steps:

Step 1: Determine the depreciation per unit of activity.
Depreciation per unit of activity = (Cost of asset - Residual value) / Units of activity
Depreciation per unit of activity = ($50,000 - $5,000) / 100,000 miles
Depreciation per unit of activity = $0.45 per mile

Step 2: Use the depreciation per unit of activity to calculate depreciation expense for the current period.
Depreciation expense = Depreciation per unit of activity × Units of activity during the current period
Depreciation expense = $0.45 per mile × 25,000 miles
Depreciation expense = $11,250

Therefore, the depreciation expense for the year using the units of production method is $11,250 (Option C).