Question

Sunland Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 161,000 miles. Taxi 10 cost $32,800 and is expected to have a salvage value of $600. Taxi 10 was driven 30,000 miles in 2021 and 34,300 miles in 2022.

Answer 1

Answer:

Depreciation in 2021 is $6,000

Depreciation in 2022 is $6,860

Book Value in 2022 is $19,940

Explanation:

Given:

Total miles expected to be driven = 161,000 miles

Cost of taxi = $32,800

Salvage value = $600

Depreciation as per unit of activity method =

$\frac{Cost -salvage\ value}{Expected\ total\ miles}$

= $\frac{32,800 - 600}{161,000}$

= $0.2 per mile

Depreciation charge for a year is total miles driven multiplied by depreciation rate per mile.

Depreciation in 2021 = 0.2 × 30,000 = $6,000

Depreciation in 2022 = 0.2 × 34,300 = $6,860

Book value at the end of 2022 = Cost - depreciation for 2021 - depreciation for 2022

= 32,800 - 6,000 - 6,860

= $19,940