City Taxi Service purchased a new auto to use as a taxi on January 1, Year 1, for $28,900. In addition, City paid sales tax and title fees of $680 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $6,350.

Required

1. Using the straight-line method, compute the depreciation expense for Year 1 and Year 2. (Round your answers to the nearest whole dollar amount.)

2. Assume the auto was sold on January 1, Year 3, for $23,331. Determine the amount of gain or loss that would be recognized on the asset disposal. (Round the intermediate calculations to nearest whole dollar amount.)