TER Company Uses the Activity (Units-Of-Production)method to Depreciate Long-Term Assets

question 183

Multiple Choice

TER Company uses the activity (units-of-production) method to depreciate long-term assets.The company owns a truck that cost $48,000.The truck is estimated to have a salvage value of $4,000 and a useful life of 200,000 miles.How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?

• A)$13,000
• B)$12,000
• C)$11,000
• D)$10,000

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Definitions:

Cash Outflows

Expenditures or payments made by a business, leading to a decrease in cash assets, including operational costs, investments, and financing activities.

IRR

Internal Rate of Return; a financial metric used to estimate the profitability of potential investments, calculated as the rate of return that sets the net present value of all cash flows from a particular project equal to zero.

Equivalent Annual Annuity

A financial calculation used to compare projects with different lifespans, by converting their net present values into equal yearly payments.

Cost of Capital

The essential yield required to validate the investment in a project involving capital budgeting, like erecting a new manufacturing plant.