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Homework answers / question archive / AP Kwik Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs
AP Kwik Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 150,000 miles. Taxi 10 cost $27,500 and is expected to have a salvage value of $500. Taxi 10 was driven 32,000 miles in 2021 and 33,000 miles in 2022. Compute the depreciation for each year. UNI
Depreciation expense for 2021 = $5760
Depreciation expense for 2022 = $5940
Explanation :
2021 :
Expected miles to be driven = 150000
Cost of Taxi = $27500
Salvage value = $500
Depreciation base = Cost of taxi - Salvage value
= $27500 - $500 = $27000
Miles driven in 2021 = 32000
Depreciation expense for 2021 = [Depreciation base / Expected miles to be driven] x Miles driven in 2021
= [$27000/150000] x 32000
= $0.18 x 32000 = $5760
2022 :
Expected miles to be driven = 150000
Cost of Taxi = $27500
Salvage value = $500
Depreciation base = Cost of taxi - Salvage value
= $27500 - $500 = $27000
Miles driven in 2022 = 33000
Depreciation expense for 2022 = [Depreciation base / Expected miles to be driven] x Miles driven in 2022
= [$27000/150000] x 33000
= $0.18 x 32000 = $5940