Crestview Estates purchased a tractor on January 1,2012,for $65,000.The tractor's useful life is estimated to be 30,000 miles and has a residual value of $5,000.If Crestview used the tractor 5,000 miles in 2012 and 3,000 miles in 2013,what is the balance for accumulated depreciation at the end of 2013 using the activity method?

Question

Quizplus · Accepted Answer

Under the activity method, depreciation is based on the expected activity or usage of the asset. The formula for calculating annual depreciation using this method is:

Annual Depreciation = (Cost - Residual Value) / Estimated Total Activity

In this case, the annual depreciation expense would be:

($65,000 - $5,000) / 30,000 = $2 per mile

For 2012, the depreciation expense would be:

5,000 miles x $2 per mile = $10,000

For 2013, the depreciation expense would be:

3,000 miles x $2 per mile = $6,000

The accumulated depreciation at the end of 2013 would be:

$10,000 + $6,000 = $16,000 (Option C)

Crestview Estates Purchased a Tractor on January 1,2012,for $65,000