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Montello Inc. purchases a delivery truck for $13,000. The truck has a salvage value of $2,000 and is expected to be driven for 110,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 21,000 miles. Calculate the annual depreciation expense.

Montello Inc. purchases a delivery truck for $13,000. The truck has a salvage value of $2,000 and is expected to be driven for 110,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 21,000 miles. Calculate the annual depreciation expense.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Montello Inc. Depreciation Calculation Example** Montello Inc. purchases a delivery truck for $13,000. The truck has a salvage value of $2,000 and is expected to be driven for 110,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 21,000 miles. Calculate the annual depreciation expense. **Solution Steps:** 1. **Determine the depreciable base:** Cost of the truck - Salvage value $13,000 - $2,000 = $11,000 2. **Calculate the depreciation rate per mile:** Depreciable base / Total expected miles $11,000 / 110,000 miles = $0.10 per mile 3. **Calculate the annual depreciation expense:** Depreciation rate per mile x Miles driven in year one $0.10 x 21,000 miles = $2,100 Thus, the annual depreciation expense for year one is $2,100.
Transcribed Image Text:**Montello Inc. Depreciation Calculation Example** Montello Inc. purchases a delivery truck for $13,000. The truck has a salvage value of $2,000 and is expected to be driven for 110,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 21,000 miles. Calculate the annual depreciation expense. **Solution Steps:** 1. **Determine the depreciable base:** Cost of the truck - Salvage value $13,000 - $2,000 = $11,000 2. **Calculate the depreciation rate per mile:** Depreciable base / Total expected miles $11,000 / 110,000 miles = $0.10 per mile 3. **Calculate the annual depreciation expense:** Depreciation rate per mile x Miles driven in year one $0.10 x 21,000 miles = $2,100 Thus, the annual depreciation expense for year one is $2,100.
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