Units-of-Production Depreciation

Irons Delivery Inc. purchased a new delivery truck for $42,000 on January 1, 2023. 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 2023 and 2024 were 40,000 and 36,000, respectively.

**Required:**

Prepare the journal entry to record depreciation expense for 2023 and 2024. If an amount box does not require an entry, leave it blank. **Do not round intermediate calculations. Round your answers to the nearest dollar.**

2023 Dec. 31

Accounts PayableAccumulated DepreciationCashDelivery TruckDepreciation ExpenseDepreciation Expense

Accounts PayableAccumulated DepreciationCashDelivery TruckDepreciation ExpenseAccumulated Depreciation

2024 Dec. 31

Accounts PayableAccumulated DepreciationCashDelivery TruckDepreciation ExpenseDepreciation Expense

Accounts PayableAccumulated DepletionAccumulated DepreciationAmortization ExpenseDepreciation ExpenseAccumulated Depreciation

To calculate depreciation using the units-of-production method, we first find the depreciation rate per mile. Then, we use this rate to calculate the depreciation expense for 2023 and 2024 based on the miles driven.

### Step 1: Calculate Depreciation Rate per Mile
1. **Cost of Truck**: $42,000
2. **Residual Value**: $2,000
3. **Total Expected Mileage**: 150,000 miles

**Formula for Depreciation Rate per Mile:**

\[
\text{Depreciation Rate per Mile} = \frac{\text{Cost - Residual Value}}{\text{Total Expected Mileage}}
\]

\[
= \frac{42,000 - 2,000}{150,000} = \frac{40,000}{150,000} = 0.2667 \, \text{per mile}
\]

### Step 2: Calculate Depreciation Expense for Each Year
#### For 2023:
1. **Miles Driven**: 40,000 miles
2. **Depreciation Expense**:

\[
\text{Depreciation Expense} = \text{Miles Driven} \times \text{Depreciation Rate per Mile}
\]

\[
= 40,000 \times 0.2667 = 10,668
\]

#### For 2024:
1. **Miles Driven**: 36,000 miles
2. **Depreciation Expense**:

\[
\text{Depreciation Expense} = 36,000 \times 0.2667 = 9,601
\]

### Step 3: Prepare Journal Entries
Using the calculated depreciation expenses, the journal entries for each year are as follows:

#### 2023
**Date:** Dec. 31, 2023  
**Account Debit:** Depreciation Expense - $10,668  
**Account Credit:** Accumulated Depreciation - $10,668  

**Journal Entry:**

| Date         | Account                  | Debit     | Credit    |
|--------------|--------------------------|-----------|-----------|
| Dec. 31, 2023| Depreciation Expense     | 10,668    |           |
|              | Accumulated Depreciation |           | 10,668    |

#### 2024
**Date:** Dec. 31, 2024  
**Account Debit:** Depreciation Expense - $9,601  
**Account Credit:** Accumulated Depreciation - $9,601  

**Journal Entry:**

| Date         | Account                  | Debit     | Credit    |
|--------------|--------------------------|-----------|-----------|
| Dec. 31, 2024| Depreciation Expense     | 9,601     |           |
|              | Accumulated Depreciation |           | 9,601     |

### Summary
- **Depreciation Expense for 2023:** $10,668
- **Depreciation Expense for 2024:** $9,601

Would you like more details on these calculations?

---

1. How would depreciation change if mileage expectations varied year to year?
2. How does the units-of-production method differ from straight-line depreciation?
3. What is the impact on the balance sheet after recording depreciation?
4. What happens if the residual value changes during the truck’s useful life?
5. How does the units-of-production method match with actual usage patterns?

**Tip:** The units-of-production depreciation method aligns depreciation expense with actual usage, ideal for assets where wear and tear is mileage- or usage-dependent.

Units-of-Production Depreciation

Irons Delivery Inc. purchased a new delivery truck for $42,000 on January 1, 2023. 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 2023 and 2024 were 40,000 and 36,000, respectively.

Prepare the journal entry to record depreciation expense for 2023 and 2024. If an amount box does not require an entry, leave it blank. Do not round intermediate calculations. Round your answers to the nearest dollar.

Learn to calculate and record depreciation using the units-of-production method for Irons Delivery Inc.'s delivery truck, purchased for $42,000 with a $2,000 residual value. This example covers step-by-step calculations for mileage-driven depreciation over two years, providing essential accounting knowledge for journal entries.

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