City Taxi Service purchased a new auto to use as a taxi on January 1, 2016, for

Question:

City Taxi Service purchased a new auto to use as a taxi on January 1, 2016, 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 2016 and 2017.

b. Prepare the general journal entry to record the 2016 depreciation on sale of taxi in 2018.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...