In: Accounting
Yello Bus Lines uses the units-of-activity method in depreciating its buses. One bus was purchased on January 1, 2017, at a cost of $148,000. Over its 4-year useful life, the bus is expected to be driven 100,000 miles. Salvage value is expected to be $8,000.
Instructions
(a) Compute the depreciable cost per unit.
(b) Prepare a depreciation schedule assuming actual mileage was: 2017, 26,000; 2018, 32,000; 2019, 25,000; and 2020, 17,000.
(a)
Depreciable Cost per unit
Depreciable Cost per unit = [Cost of Asset – Salvage Value] / Estimated Total Miles
= [$148,000 – 8,000] / 100,000 Miles
= $140,000 / 100,000 Miles
= $1.40 per mile
(b)
Depreciation Schedule
Year |
Units of Activity |
Depreciation cost per mile |
Annual Depreciation |
Accumulated Depreciation |
Ending Book Value |
2017 |
26,000 Miles |
$1.40 |
$36,400 |
$36,400 |
$1,11,600 |
2018 |
32,000 Miles |
$1.40 |
$44,800 |
$81,200 |
$66,800 |
2019 |
25,000 Miles |
$1.40 |
$35,000 |
$1,16,200 |
$31,800 |
2020 |
17,000 Miles |
$1.40 |
$23,800 |
$1,40,000 |
$8,000 |
TOTAL |
100,000 Miles |
$140,000 |
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(a)
Depreciable Cost per unit
Depreciable Cost per unit = [Cost of Asset – Salvage Value] / Estimated Total Miles
= [$148,000 – 8,000] / 100,000 Miles
= $140,000 / 100,000 Miles
= $1.40 per mile