On February 1, 2011, Delta Distribution Company purchased a delivery truck that cost $30,000. The truck has an estimated useful life of 150,000 miles and an estimated salvage value of $3,000

The truck is driven 10,000; 34,000; and 28,000 miles for the years 2011, 2012, and 2013, respectively.

Required:
1. Calculate the depreciation expense per mile using the activity (units-of-production) method.

2. Use the activity method to complete the chart below:

Year Miles
driven Depreciation expense
for the year ended Dec. 31 Book value at Dec. 31
2011 10,000 $ $
2012 34,000 $ $
2013 28,000 $ $

3. Explain why long-term assets must be depreciated, rather than recorded as expenses in the period when the asset is purchased.

4. Explain why land is NOT depreciated when other assets, such as trucks, are depreciated.

1. ($30,000 — 3,000) / 150,000 miles = $0.18 per mile
2.
Year Depreciation Expense Book value at December 31
2011 $1,800 = 10,000 miles @ $0.18 $28,200 = $30,000 — 1,800
2012 $6,120 = 34,000 miles @ $0.18 $22,080 = $28,200 — 6,120
2013 $5,040 = 28,000 miles @ $0.18 $17,040 = $22,080 — 5,040

3. Long-term assets must be depreciated because of the matching principle, which requires that all expenses incurred in a given period should be matched against the revenue those expenses helped generate. In other words, we must match efforts (expenses) with accomplishments (revenues).

4. Land is not depreciated because it does not use up its value. Theoretically, land has an infinite useful life.