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. Assume the van was sold on January 1, Year 3, 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.) Year 1 Depreciation Year 2 Depreciation a. per year per year b. on sale
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. Assume the van was sold on January 1, Year 3, 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.) Year 1 Depreciation Year 2 Depreciation a. per year per year b. on sale
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text: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. Assume the van was sold on January 1, Year 3, 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.)
Year 1 Depreciation
Year 2 Depreciation
a.
per year
per year
b.
on sale
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