On January 1, 2018, Wasson Company purchased a delivery vehicle costing $40,000. The vehicle has an estimated 3-year life and a $4,000 residual value. Wasson estimates that the vehicle will be driven 72,000 miles. What is the vehicle's depreciation expense for the year ended December 31, 2020 assuming Wasson uses the units-of-production depreciation method and the vehicle was driven 35,000 miles during 2018, 25,000 miles during 2019 and 14,000 miles in 2020? Group of answer choices A)$7,000 b)$12,000 C)$7,778 D)$6,667 e)None of the above
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2018, Wasson Company purchased a delivery vehicle costing $40,000. The vehicle has an estimated 3-year life and a $4,000 residual value. Wasson estimates that the vehicle will be driven 72,000 miles. What is the vehicle's
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