Question

onion company, whose fiscal year ends on december 31st, purchased a vehicle for $41,000 on march 12, 2022. the vehicle’s estimated useful life is five years, and it is expected to be driven 150,000 miles (20,000 miles in the first year and 32,500 for each of the remaining four years). onion estimates the salvage value at $3,500. using the units-of-activity method, what amount of depreciation expense will onion company record in year 3? $8,125

Answer 1

Using the units-of-activity method, $8125 amount of depreciation expense will onion company record in year 3.

Explain Units of Activity.

The cost of the asset (minus any salvage value) is assigned to the accounting periods based on the asset's utilisation (units produced, activity, etc.) throughout each accounting period under the units-of-activity method of depreciation. Depreciation Expense = Unit Production Rate x Units Produced is the calculation for depreciation of units of production. The depreciable cost for the units-of-activity technique is computed by removing the projected salvage value from the initial cost ($41,000 - 3,500 = $37,500). This figure is then divided by the total number of projected units to calculate the depreciation per unit ($37,500 150,000 miles = $0.25 every mile). The vehicle is predicted to travel 32,500 miles in year three. Increasing the dep.

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