Question

In: Accounting

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

 

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