DEF Company purchases a vehicle on January 1, 2013 for $60,000 with an estimated residual value of $6,000 and useful life of 90,000 miles. Use the units-of-activity method. Prepare the journal entry to record depreciation for 2015 if the truck is driven 10,000 miles in that year. If possible, compute the net book value at the end of 2015. If possible, compute the net book value at the end of 2015 if the vehicle was driven 20,000 and 30,000 miles in 2013 and 2014, respectively.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
DEF Company purchases a vehicle on January 1, 2013 for $60,000 with an estimated residual value of $6,000 and useful life of 90,000 miles. Use the units-of-activity method.
- Prepare the
journal entry to recorddepreciation for 2015 if the truck is driven 10,000 miles in that year. - If possible, compute the net book value at the end of 2015.
- If possible, compute the net book value at the end of 2015 if the vehicle was driven 20,000 and 30,000 miles in 2013 and 2014, respectively.
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