Problem 6-27 Computing and recording units- of- production depreciation
Brees Corporation purchased a delivery van for $ 35,500 in 2010. The firm's financial condition immediately prior to the purchase is shown in the following horizontal statements model.
Cash + Van - acct depreciation = common stock + Retained Earnings
$50,000 + NA - NA = 50,000 + NA
The van was expected to have a useful life of 150,000 miles and a salvage value of $ 5,500. Actual mileage was as follows.
a. Compute the depreciation for each of the three years, assuming the use of units- of- production depreciation.
b. Assume that Brees earns $ 21,000 of cash revenue during 2010. Record the purchase of the van and the recognition of the revenue and the depreciation expense for the first year in a financial statements model like the preceding one.
c. Assume that Brees sold the van at the end of the third year for $ 4,000. Calculate the amount of gain or lose from the sale.
a. In units of production, depreciation = Units X depreciation per unit
Depreciation per unit = (Cost - salvage value)/total expected units over the life
In this question
depreciation per mile = (35,500-5,500)/150,000 miles = $0.2 per mile
Depreciation in 2010 = 50,000 miles X 0.2 = $10,000
Depreciation in 2011 = ...
The solution computes and records unit-of-production depreciation.