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24 November, 18:05

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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  1. 24 November, 18:12
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    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
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