Question

On January 1, 2016, Wasson Company purchased a delivery vehicle costing $38,550. The vehicle has an estimated 7-year life and a $3,900 residual value. Wasson uses the units-of-production depreciation method and Wasson estimates that the vehicle will be driven 99,000 miles. What is the vehicle's book value as of December 31, 2017 assuming Wasson uses the units-of-production depreciation method and the vehicle was driven 11,100 miles during 2016 and 19,100 miles during 2017? (Do not round your intermediate calculations.)

$24,080.

$28,650.

$24,750.

$27,980.

Answer 1

Given cost of vehicle purchased on 1 an 2016 = $ 38,550

Salvage value at the end of 7 years life = $ 3,900

Therefore the depreciable cost is = $ 34,650 (38,550 – 3,900)

Given total miles that vehicle could be driven = 99,000

So the depreciable cost per mile = $ 0.35 (34,650/99.000)

Calculation of book value at the end of 31 dec 2017:

Given miles driven in year 2016 = 11,100

2017 = 19,100

Total miles driven = 30,200

Remaining miles to be driven by vehicle will be = 68,800 (99,000 – 30,200)

Book value at the end of 31 dec 2017 = Remaining miles * depreciable cost per mile = 68,800 * 0.35 = $24,080

Answer is option "A"