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Splish Brothers Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab...

Splish Brothers Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 158,000 miles. Taxi no. 10 cost $35,000 and is expected to have a salvage value of $1,820. Taxi no. 10 is driven 28,500 miles in year 1 and 19,500 miles in year 2.

(a1) Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.)

Depreciation cost $___ per mile

(b1) Determine the depreciation expense for each year (year 1 and year 2).

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Answer #1

a1.

Cost of equipment= $35,000

Salvage value = $1,820

Estimated use = 158,000 miles

Depreciation expense per mile = (Cost of equipment - Salvage value)

= (35,000-1,820)/158,000

= 0.21 per mile

b1.

Depreciation expense for year 1 = Number of miles driven in year 1 x Depreciation expense per mile

= 28,500 x 0.21

= $5,985

Depreciation expense for year 2 = Number of miles driven in year 2 x Depreciation expense per mile

= 19,500 x 0.21

= $4,095

Kindly comment if you need further assistance. Thanks

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