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The Likert Company is a coal company based in West Virginia. The company recently purchased a new coal truck for $64,000. The truck had an expected useful life of 200,000 miles and an expected salvage value of $4,000. Calculate the depreciation expense using the units-of-production method assuming the truck travelled 40,000 miles on company business during the year.

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Answer:

The depreciation expense during the year: $12,000

Explanation:

The Likert Company uses the units-of-production depreciation method to calculate depreciation expense by the following formula:

Depreciation Expense = [(Cost of asset − Residual Value ) x Number of Miles Produced]/Life in Number of Miles

Depreciation Expense per mile = ($64,000 - $4,000)/200,000 = $0.3

During the year,  the truck travelled 40,000 miles

Depreciation Expense = $0.3 x 40,000 = $12,000

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