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ABC firm has a truck purchased 2 years ago at 175,000. The estimated residual value is...

ABC firm has a truck purchased 2 years ago at 175,000. The estimated residual value is $25,000. ABC drove 15,000 miles in the first year and 22,000 miles in the second year. It is estimated the truck has an estimated life of 300,00 miles. What is the value of accumulated depreciation in the second year using the activity-based method?

a. 16,000

b. 7,500

c. 18,500

d. 11,000

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Answer #1

Correct answer---------(c) $18,500

Working

I have assumed the estimated life in miles to be 300000 miles instead of 30000. Please leave a comment if a y thing is otherwise.

Activity method
A Cost $ 175,000
B Residual Value $ 25,000
C=A - B Depreciable base $ 150,000
D Usage in units(in Miles) 300000
E Depreciation per Mile $ 0.50

.

Depreciation schedule-Units of Activity
Year Book Value Usage Depreciation expense Accumulated Depreciation Ending Book Value
1 $            175,000 15000 $                      7,500 $                       7,500 $            167,500
2 $            167,500 22000 $                   11,000 $                    18,500 $            156,500
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