City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $36,000. In addition, City paid sales tax and title fees of $1,200 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $4,000. Required a. Using the straight-line method, compute the depreciation expense for Year 1 and Year 2. b & c. Assume that the taxi was sold on January 1, Year 3, for $22,000. Prepare the general journal entries to record the Year 1 depreciation and sale of the taxi in Year 3.

Question

Business

Kaitlin Lozano

24 February, 00:04

City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $36,000. In addition, City paid sales tax and title fees of $1,200 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $4,000. Required a. Using the straight-line method, compute the depreciation expense for Year 1 and Year 2. b & c. Assume that the taxi was sold on January 1, Year 3, for $22,000. Prepare the general journal entries to record the Year 1 depreciation and sale of the taxi in Year 3.

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Answers (1)

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Gilbert Raymond · Answer 1

Solution and Explanation:

answer a) Purchase Price of Taxi = 36000

Sales tax and title fees = 1200

Cost of Taxi = 37200

salvage value = 4000

Depreciable amount = 33200

Life of taxu in n years = 5

Depreciation per year = 66400

Therefore, depreciation for 2016 and 2017 is $66400

Answer b)

year particulars debit credit

2016 depreciation expense 66400

Accumulated depreciation on taxi 66400

2017 depreciation expense 66400

Accumulated depreciation on taxi 66400

Answer c) Sale price of Taxi - 2000

Book value of taxi - 23920 (37200 minus 6640 minus 66400)

Loss on sale value of taxi = 1920

year particulars debit credit

1st january 2018 Loss on sale of taxi 1920

Cash 22000

Accumulated dep on taxi 13280

taxi purchase 37200