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

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

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

b. 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.

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...