On January 1, Speedy Delivery Company purchases a delivery van for $40,800. Speedy estimates that at the end of its four-year service life, the van will be worth $5,600. During the four-year period, the company expects to drive the van 176,000 miles. Actual miles driven each year were 45,000 miles in year 1 and 50,000 miles in year 2.Required:Calculate annual depreciation for the first two years using each of the following methods. (Do not round your intermediate calculations.)Exercise 7-11 (Algo) Part 33. Activity-based.
Question
On January 1, Speedy Delivery Company purchases a delivery van for 5,600. During the four-year period, the company expects to drive the van 176,000 miles. Actual miles driven each year were 45,000 miles in year 1 and 50,000 miles in year 2.Required:Calculate annual depreciation for the first two years using each of the following methods. (Do not round your intermediate calculations.)Exercise 7-11 (Algo) Part 33. Activity-based.
Solution
To calculate the annual depreciation using the activity-based method, we first need to determine the depreciable cost of the van. This is the original cost of the van minus the estimated salvage value at the end of its service life.
Depreciable cost = Original cost - Salvage value Depreciable cost = 5,600 = $35,200
Next, we calculate the depreciation rate per mile. This is the depreciable cost divided by the total expected miles driven over the van's service life.
Depreciation rate per mile = Depreciable cost / Total expected miles Depreciation rate per mile = 0.20 per mile
Now we can calculate the annual depreciation for each year by multiplying the depreciation rate per mile by the actual miles driven in each year.
Year 1 depreciation = Depreciation rate per mile * Miles driven in year 1 Year 1 depreciation = 9,000
Year 2 depreciation = Depreciation rate per mile * Miles driven in year 2 Year 2 depreciation = 10,000
So, the annual depreciation for the first year is 10,000 using the activity-based method.
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