Question

Exercise 8-11A Events related to the acquisition, use, and disposal of a tangible plant asset: straight-line depreciation LO 8-2, 8-5

City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $20,400. In addition, City paid sales tax and title fees of $630 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $6,500.

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 $17,501. Prepare the general journal entries to record the Year 1 depreciation and sale of the taxi in Year 3.

Complete this question by entering your answers in the tabs below.

• Req A
• Req B and C

Using the straight-line method, compute the depreciation expense for Year 1 and Year 2. (Round your answers to the nearest whole dollar amount.)

	Year 1	Year 2
Depreciation expense

• Record depreciation expense.
• Record entry for sale of taxi and gain on sale.

Answer 1

a)

Straight line Method
Cost of Tax ($20,400+$630)	$ 21,030
Less: Salvage value	$ (6,500)
Depreciable value	$ 14,530
Life of Asset	5 Years
Depreciation per year ($14,530/5)	$    2,906
Depreciation per year 1	$    2,906
Depreciation per year 2	$    2,906

b)

Account title	Debit	Credit
Depreciation Expense	$ 2,906
Accumualted depreciation - Plant Assets		$ 2,906

c)

Account title	Debit	Credit
Cash	$   17,501
Accumulated depreciation - Plant assets ($2,906*5)	$     5,812
Plant Assets		$   21,030
Gain on sale of assets		$     2,283

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