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30 December, 08:13

Teal Mountain Inc. purchased a tractor trailer for $143000. Teal Mountain uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1000000 miles over its 12-year useful life. Salvage value is estimated to be $15000. If the truck is driven 78000 miles in its first year, how much depreciation expense should Teal Mountain record

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  1. 30 December, 08:28
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    Annual depreciation = $9,984

    Explanation:

    Giving the following information:

    Purchasing price = $143,000.

    Useful life in miles = 1,000,000

    Salvage value = $15,000.

    The truck is driven 78,000 miles in its first year.

    To calculate the depreciation expense under the units of activity method, we need to use the following formula:

    Annual depreciation = [ (original cost - salvage value) / useful life of production in miles]*miles driven

    Annual depreciation = [ (143,000 - 15,000) / 1,000,000]*78,000

    Annual depreciation = 0.128*78,000

    Annual depreciation = $9,984
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