On January 1, Year 1, the City Taxi Company purchased a new taxi cab for $51,000. The cab has an expected salvage value of $12,000. 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 60,000 miles the first year and 63,000 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

The amount of depreciation expense reported on the Year 2 is $12,285 and the book value of the taxi at the end of Year 2 is $27,015

Explanation:

In order to calculate 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 we would have to make the following calculations:

Particulars              Amount

Cost of taxi                    $51,000.00

Salvage Value             $12,000.00

Life in miles                   200,000.00

Depreciation per mile = ($51,000.00  - $12,000.00 )/200,000=0.195

Depreciation for Year 1 = 60,000 * 0.195=11,700.00

Depreciation for Year 2 = 63,000 * 0.195=12,285.00

book value of the taxi, respectively, at the end of Year 2 = 51,000 - 11,700 - 12,285=27,015.00

The amount of depreciation expense reported on the Year 2 is $12,285 and the book value of the taxi at the end of Year 2 is $27,015

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answer; microeconomics;