Units-of-activity Depreciation A truck acquired at a cost of $180,000 has an estimated residual value of $9,500, has an estimated useful life of 55,000 miles, and was driven 4,400 miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places. (a) The Depreciable Cost $ 3.1 (b) The Depreciation Rate $ per mile (c) The Units-of-activity Depreciation for the Year $

a.

The depreciable cost is $170500

b.

The depreciation rate is $3.1 per mile

c.

The depreciation expense for the year is $13640

Explanation:

a.

The depreciable cost is the cost of the asset that qualifies to be charged as depreciation expense over the estimated useful life of the asset. The depreciable cost is calculated as follows,

Depreciable cost = Cost - Residual Value

depreciable cost = 180000 - 9500 = $170500

b.

The depreciation rate under unit of activity method is the amount of depreciation that will be charged per unit of the asset usage.

The depreciation rate = Depreciable cost / estimated useful life in units of activity

The depreciation rate = 170500 / 55000 = $3.1 per mile

c.

The units of activity depreciation for the year can be calculated by multiplying the depreciation rate per unit by the activity for the year in unit terms.

Depreciation expense for the year = 3.1 * 4400 = $13640