Question

Crestview Estates purchased a tractor on January 1, 2015, for $65,000. The tractor's useful life is estimated to be 30,000 miles and has a residual value of $5,000. If Crestview used the tractor 5,000 miles in 2015 and 3,000 miles in 2016, what is the balance for accumulated depreciation at the end of 2016 using the activity-based method?

Answer 1

Answer:

$16,000

Explanation:

The computation of the accumulated depreciation is shown below:

For this computation, first we have to determine depreciation rate per mile which is presented below:

= (Original cost - residual value) ÷ (estimated miles)  

= ($65,000 - $5,000) ÷ ($30,000 miles)

= ($60,000) ÷ ($30,000 miles)  

= $2 per miles

Now the accumulated depreciation

= Total Production units  × depreciation per miles

= 8,000 miles × $2

= $16,000

The total production units would be

= 5,000 miles + 3,000 miles

= 8,000 miles