Brevard Corporation purchased a taxicab on January 1, 2016 for $34,000 to use for its shuttle business. The cab is expected to have a five-year useful life and no salvage value. During 2017, it retouched the cab's paint at a cost of $1,600, replaced the transmission for $4,000 (which extended its life by an additional 2 years), and tuned-up the engine for $200. If Brevard Corporation uses straight-line depreciation, what annual depreciation will Brevard report for 2017?
A)$6,800.
B)$5,200.
C)$5,500.
D)$5,467.

Question

Quizplus · Accepted Answer

The cost of the taxicab is $34,000, and it has a useful life of 5 years, so its annual straight-line depreciation is $34,000/5 = $6,800 per year.
In 2017, Brevard Corporation spent $1,600 + $4,000 + $200 = $5,800 on maintenance and repairs. These expenses do not increase the useful life of the taxicab, so they are expensed immediately and do not affect depreciation.
Therefore, the annual depreciation for 2017 is still $6,800. Subtracting the 2016 depreciation of $6,800, the 2017 Depreciation amount will be $6,800-$6,800 = $0
Thus, the Brevard Corporation will report $5,200 depreciation.

Brevard Corporation Purchased a Taxicab on January 1, 2016 for $34,000