A truck costs $300,000 and is expected to run 100,000 miles during its 5-year life.Residual value is expected to be zero because the truck was used when acquired.If the truck runs 24,000 miles the first year,how much depreciation should the corporation record under the units-of-production method?

Question

Quizplus · Accepted Answer

Under the units-of-production method, depreciation is calculated based on the number of units produced or miles driven. To calculate the depreciation for the first year, we need to determine what percentage of the truck's total expected miles were used in the first year.

24,000 miles / 100,000 miles = 0.24 or 24% of the total expected miles were used in the first year.

To calculate the depreciation expense, we multiply this percentage by the truck's cost, and then divide by the number of years it is expected to be in service.

Depreciation expense = (24% x $300,000) / 5 years = $72,000

Therefore, the correct answer is C.

A Truck Costs $300,000 and Is Expected to Run 100,000