Question

City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $23,700. In addition, City paid sales tax and title fees of $570 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $6,360. Required a. Using the straight-line method, compute the depreciation expense for Year 1 and Year 2. (Round your answers to the nearest whole dollar amount.) b. Assume the auto was sold on January 1, Year 3, for $19,672. Determine the amount of gain or loss that would be recognized on the asset disposal. (Round the intermediate calculations to nearest whole dollar amount.)

Answer 1

Answer: See explanation

Step-by-step explanation:

Note that the depreciable cost was calculated as $17910 and the depreciation per year was:

= $17910/5

= $3582

Also, the book value of the taxi was calculated as:

= Cost - Accumulated depreciation

= $24270 - ($3582 × 2)

= $24270 - $7164

= $17106

Check the attachment for further explanation.