Question

City Taxi Service purchased a new auto to use as a taxi on January 1, 2018, 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

1. Using the straight-line method, compute the depreciation expense for 2018 and 2019.

2. Assume the van was sold on January 1, 2020, for $21,000. Determine the amount of gain or loss that would be recognized on the asset disposal. (Amounts to be deducted should be indicated with minus sign.)

2018 Depreciation _________ per year

2019 Depreciation __________ per year

Gain or Loss?, on sale __________

Answer 1

Answer:

a	2018 Depreciation expense	$6,640	per year
	2019 Depreciation expense	$6,640	per year
b	Loss on sale	$2,920

Calculations:

a.

Purchase price of the taxi	$36,000
Add: Sales tax and title fees	$1,200
Cost of the asset	$37,200
(Less): Salvage value	($4,000)
Depreciable value	$33,200
÷ Estimated useful life	5
Depreciation expense per year	$6,640

b.

Sale price		$21,000
Less: Book value
Cost	$37,200
(Less): Accumulated depreciation[$6,640 x 2]	($13,280)	$23,920
Gain/(loss) on sale		($2,920)