Question

Porika Company purchased a truck for $57,000. The company expected the truck to last four years or 100,000 miles, with an estimated residual value of $6,000 at the end of that time. During the second year the truck was driven 27,000 miles. Compute the depreciation for the second year under each of the methods below and place your answers in the blanks provided.

Units-of-activity ______$

Double-declining-balance ____________ $

Answer 1

Depreciation under units of activity method = (Cost - Residual value) * Miles driven / Total expected miles

Depreciation in the Year 2 = ($57,000 - $6,000) * 27,000 / 100,000

= $13,770

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Depreciation under Double declining balance method = (Cost - Accumulated depreciation) / Useful life * 2

Depreciation in the Year 1 = ($57,000 - $0) / 4 * 2

= $28,500

Depreciation in the Year 2 = ($57,000 - $28,500) / 4 * 2

= $14,250