Cornerstone Exercise 7-21 (Algorithmic) Units-of-Production Depreciation Irons Delivery Inc. purchased a new delivery truck for $42,000 on January 1, 2019. The truck is expected to have a $2,000 residual value at the end of its 5-year useful life. Irons uses the units-of-production method of depreciation. Irons expects the truck to run for 150,000 miles. The actual miles driven in 2019 and 2020 were 41,000 and 36,000, respectively. Required: Prepare the journal entry to record depreciation expense for 2019 and 2020. Round your answers to the nearest dollar. Do not round intermediate calculations.

Answer:

2019

Debit : Depreciation Expense $11,070

Credit : Accumulated Depreciation $11,070

2020

Debit : Depreciation Expense $9,720

Credit : Accumulated Depreciation $9,720

Explanation:

Step 1 : Determine the rate of depreciation

Rate of Depreciation = (Cost - Residual Value) ÷ Estimated Production

                                   = ($42,000 - $2,000) ÷ 150,000 miles

                                   = $0.26666 or $0.27

Step 2 : Determine the Depreciation Expense

Depreciation Expense = Units for the period x Rate of Depreciation

therefore.

Depreciation Expense - 2019 = $0.27 x 41,000

                                                 = $11,070

Depreciation Expense - 2020 = $0.27 x 36,000

                                                 = $9,720

Step 3 : Journal entries

2019

Debit : Depreciation Expense $11,070

Credit : Accumulated Depreciation $11,070

2020

Debit : Depreciation Expense $9,720

Credit : Accumulated Depreciation $9,720

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