Whippet Bus Lines uses the units-of-activity method in depreciating its buses. One bus was purchased on January 1, 2017, at a cost of $101,000. Over its 4-year useful life, the bus is expected to be driven 186,000 miles. Salvage value is expected to be $8,000.

Question

Dayanara Stout

Business

18 May, 01:37

Whippet Bus Lines uses the units-of-activity method in depreciating its buses. One bus was purchased on January 1, 2017, at a cost of $101,000. Over its 4-year useful life, the bus is expected to be driven 186,000 miles. Salvage value is expected to be $8,000.

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Savanah Conrad · Answer 1

Whippet Bus lines should depreciate the bus $0.50 for every mile driven.

Explanation:

To determine the amount of money that Whippet Bus should depreciate for every mile driven, we first must find the total depreciable value of the bus:

depreciable value = purchase cost - salvage value = $101,000 - $8,000 = $93,000

Now we divide the depreciable value by the expected useful life of the bus measured in miles:

cost per unit of activity = $93,000 / 186,000 miles = $0.50 per mile