Yello Bus Lines uses the units-of-activity method in depreciating its buses.

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.

Solutions

Expert Solution

(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

(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

Junaid answered 2 years ago

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