On January 1, 2016, the City Taxi Company purchased a new taxi cab for $84,000.
ID: 2468616 • Letter: O
Question
On January 1, 2016, the City Taxi Company purchased a new taxi cab for $84,000. The cab has an expected salvage value of $34,000. 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 66,000 miles the first year and 96,000 the second year. What would be the depreciation expense reported on the 2017 income statement and the book value of the taxi at the end of 2017? (Do not round intermediate calculations.)
A $24,000/$43,500.
B $24,000/$9,500.
C $40,320/$15,960.
D$40,320/$-18,040.
Explanation / Answer
Answer: A $24,000/$43,500
Depreciation $24000
Book Value $43500
Jan 1 2016 Purchase cost of Taxi Cab $84,000 Less: Salvage Value -$34,000 $50,000 Estimated Life (in Miles) 200000 Miles driven Year 1 66000 Depreciation Year 1 : 50000*(66000/200000) 16500 Dec 31 2016 Purchase cost of Taxi Cab $84,000 Less: Depreciation Year 1 -$16,500 Book Value at the end of Year 1 $67,500 Dec 31 2017 Book Value at the beginning $67,500 Less: Depreciation: 50000*(96000/200000) -$24,000 Book Value at the end of Year 2 $43,500