On January 1,Year 1,the City Taxi Company purchased a new taxi cab for $36,000.The cab has an expected salvage value of $2,000.The company estimates that the cab will be driven 200,000 miles over its life.It uses the units-of-production method to determine depreciation expense.The cab was driven 45,000 miles the first year and 48,000 the second year.What is the amount of depreciation expense reported on the Year 2 income statement and the book value of the taxi at the end of Year 2,respectively?

Question

Quizplus · Accepted Answer

Year 1 Depreciation expense = [(Cost of $36,000 - Salvage value of $2,000)÷ Estimate of 200,000 miles] × Miles driven during year of 45,000 = $7,650
Year 2 Depreciation expense = [(Cost of $36,000 -Salvage value of $2,000)÷ Estimate of 200,000 miles] × Miles driven during year of 48,000 = $8,160
Book value at end of Year 2 = Cost of $36,000 - Accumulated depreciation of ($7,650 + $8,160)= $20,190

On January 1,Year 1,the City Taxi Company Purchased a New