Question

Paul Hauling has a fleet of 10 large trucks that cost a total of $1,410,000. The fleet is expected to provide 1,000,000 miles of transportation during an estimated 10-year life, and be sold for 10% of the original cost at the end of that time. If the fleet traveled 125,000 miles in the current twelve-month period, what would be the depreciation expense under the straight-line (SL) and units-of-production (U-of-P) methods?

A) SL = $141,000 & U-of-P = $158,625

B) SL = $158,625 & U-of-P = $141,000

C) SL = $126,900 & U-of-P = $176,250

D) SL = $126,900 & U-of-P = $158,625

Answer 1

Original Cost = $1,410,000

Residual Value ($1,410,000 * 10%) = $141,000

Depreciation Expense under SLM = [Cost - Residual value] / Useful life

Depreciation Expense under SLM = [$1,410,000 - $141,000] / 10

Depreciation Expense under SLM = $126,900

Depreciation Expense using Units of production method

Depreciation expense per unit mile = [$1410,000 - $141,000] / 1,000,000

Depreciation expense per unit mile = $1.269 per mile

Total Depreciation Expense for the current period = $1.269 * 125,000 = $158,625

Option 'D' is correct