Measuring asset cost, UOP depreciation, and asset trade [10-15 min]
Safety Trucking Company uses the units-of-production (UOP) depreciation method because UOP best measures wear and tear on the trucks. Consider these facts about one Mack truck in the company’s fleet.
When acquired in 2010, the rig cost $450,000 and was expected to remain in service for 10 years or 1,000,000 miles. Estimated residual value was $150,000. The truck was driven 82,000 miles in 2010, 122,000 miles in 2011, and 162,000 miles in 2012. After 45,000 miles in 2013, the company traded in the Mack truck for a less- expensive Freightliner. Safety also paid cash of $22,000. Fair value of the Mack truck was equal to its net book value on the date of the trade.
Requirement
1. Determine Safety’s cost of the new truck. Journal entries are not required.
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