Question

a taxi company purchases a new vehicle for $40,000, expecting it to have a salvage value of $10,000 after 5 years of use. what will be the depreciation expense per year using the straight - line method, and what will be the book value of the taxi after 2 years? $6,000 depreciation per year; $22,000 book value after 2 years $8,000 depreciation per year; $32,000 book value after 2 years $8,000 depreciation per year; $24,000 book value after 2 years $6,000 depreciation per year; $28,000 book value after 2 years

Explanation:

Step1: Calculate total depreciable cost

$\text{Total Depreciable Cost} = \text{Purchase Price} - \text{Salvage Value} = 40000 - 10000 = 30000$

Step2: Find annual depreciation

$\text{Annual Depreciation} = \frac{\text{Total Depreciable Cost}}{\text{Useful Life}} = \frac{30000}{5} = 6000$

Step3: Calculate 2-year total depreciation

$\text{2-Year Depreciation} = 6000 \times 2 = 12000$

Step4: Compute book value after 2 years

$\text{Book Value} = \text{Purchase Price} - \text{2-Year Depreciation} = 40000 - 12000 = 28000$

Answer:

$6,000 depreciation per year; $28,000 book value after 2 years