A company purchases a new delivery truck for $20,000 the truck is expected to have a useful life of 90,000 miles before replacement,and a salvage value of $2,000.In its first year the truck was driven 22,000 miles and a further 19,000 miles in year two.what is the depreciation
expense and book value at the end of year two?
We will glad to critique your work (when shown), and Kara's too.
To calculate the depreciation expense and book value at the end of year two, we first need to determine the total miles driven by the truck during the first two years.
In the first year, the truck was driven 22,000 miles. In the second year, it was driven an additional 19,000 miles. Therefore, the total miles driven in the first two years is 22,000 miles + 19,000 miles = 41,000 miles.
Next, we need to calculate the depreciation expense for the first two years.
The formula for straight-line depreciation can be used to calculate the annual depreciation expense:
Depreciation Expense = (Initial Cost - Salvage Value) / Useful Life
Given:
Initial Cost = $20,000
Salvage Value = $2,000
Useful Life = 90,000 miles
Depreciation Expense = ($20,000 - $2,000) / 90,000 miles
Depreciation Expense = $18,000 / 90,000 miles
Depreciation Expense = $0.20 per mile
Now we can calculate the depreciation expense for the first two years:
Depreciation Expense for Year 1 = 22,000 miles * $0.20/mile = $4,400
Depreciation Expense for Year 2 = 19,000 miles * $0.20/mile = $3,800
To calculate the book value at the end of year two, subtract the total depreciation expense for the first two years from the initial cost of the truck:
Book Value at the end of Year 2 = Initial Cost - Depreciation Expense for Year 1 - Depreciation Expense for Year 2
Book Value at the end of Year 2 = $20,000 - $4,400 - $3,800
Book Value at the end of Year 2 = $11,800
Therefore, the depreciation expense at the end of year two is $3,800 and the book value at the end of year two is $11,800.