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Question - City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $21,900. In addition, City paid sales tax and title fees of $890 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $6,620.
Required -
a. Using the straight-line method, compute the depreciation expense for Year 1 and Year 2.
b. Assume that the taxi was sold on January 1, Year 3, for $18,770. Prepare the general journal entries to record the Year 1 depreciation and sale of the taxi in Year 3.
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