Question

Steagall Corporation purchased a vehicle costing $65,000 on January 1, 2019. The company intends to depreciate the asset over 4 years using the units-of-activity method, based on mileage. The salvage value is estimated to be $3,000. The vehicle is expected to be driven by Steagall a total of approximately 200,000 miles during the life of the asset. Using this information, answer the following questions.

What is the depreciation rate of vehicle? $____________________

Prepare the necessary journal entry to record depreciation expense for the current period, if the vehicle was driven 70,000 miles.

_____________________________________

________________________________________

Answer 1

1. The Depreciation Rate = 0.31

2. The Entry Will Be

Date	Accounts and Explanation	Debit	Credit
31-Dec	Depreciation Expense A/c	21,700
	Accumulated Depreciation A/c		21,700
	(Depreciation Recorded)

The cost of asset = 65000

Salavage Value = 3000

Depreciation Base = Cost - Salvage = 65000 - 3000 = 62000

Estimated Mileage = 200000

Then Depreciation Rate = Depreciation Base / Estimated Mileage = 62000 / 200000 = 0.31

The Depreciation Rate will be 0.31

The depreciation for 2019 = Actual mileage of the year x Depreciation Rate = 70000 x 0.31 = 21700

Expense accounts should be debited and will show income statement and accumulated depreciation will show balance sheet as deduction for asset value.