Bangor Industries purchased a car for $22,000 on January 1,20A.The car had an estimated useful life of 80,000 kilometres and an estimated residual value of $4,000.In the second year of ownership (20B),the car was driven 25,000 kilometres.Using the units of production method,what was the amount of depreciation expense for 20B?
A)$4,500
B)$5,000
C)$5,625
D)$6,875

Question

Quizplus · Accepted Answer

Under the units of production method, depreciation is charged based on the actual usage of the asset. Therefore, the depreciation expense for the second year (20B) can be calculated as follows:

Depreciation per unit = (Cost of asset - Residual value) / Estimated total usage
= ($22,000 - $4,000) / 80,000 km
= $0.20 per kilometer

Depreciation expense for 20B = Depreciation per unit x Actual usage in 20B
= $0.20 x 25,000 km
= $5,000

Therefore, the correct answer is C) $5,625.

Bangor Industries Purchased a Car for $22,000 on January 1,20A