Teal Mountain Inc. purchased a tractor trailer for $143000. Teal Mountain uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1000000 miles over its 12-year useful life. Salvage value is estimated to be $15000. If the truck is driven 78000 miles in its first year, how much depreciation expense should Teal Mountain record

Annual depreciation = $9,984

Explanation:

Giving the following information:

Purchasing price = $143,000.

Useful life in miles = 1,000,000

Salvage value = $15,000.

The truck is driven 78,000 miles in its first year.

To calculate the depreciation expense under the units of activity method, we need to use the following formula:

Annual depreciation = [ (original cost - salvage value) / useful life of production in miles]*miles driven

Annual depreciation = [ (143,000 - 15,000) / 1,000,000]*78,000

Annual depreciation = 0.128*78,000

Annual depreciation = $9,984