In 1987, Herman Moore Company completed the construction of a building at a cost
ID: 2474333 • Letter: I
Question
In 1987, Herman Moore Company completed the construction of a building at a cost of $2,860,000 and first occupied it in January 1988. It was estimated that the building will have a useful life of 40 years and a salvage value of $85,800 at the end of that time.
Early in 1998, an addition to the building was constructed at a cost of $715,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $28,600.
In 2016, it is determined that the probable life of the building and addition will extend to the end of 2047, or 20 years beyond the original estimate.
Using the straight-line method, compute the annual depreciation that would have been charged from 1988 through 1997. (Round answer to 0 decimal places, e.g. 45,892.)
Annual depreciation from 1988 through 1997 $? / yr
Compute the annual depreciation that would have been charged from 1998 through 2015. (Round answer to 0 decimal places, e.g. 45,892.) Annual depreciation from 1998 through 2015 $ ? / yr
Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2016. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit
Compute the annual depreciation to be charged, beginning with 2016. (Round answer to 0 decimal places, e.g. 45,892.) Annual depreciation expense—building $ ?
Explanation / Answer
Total Depreciation from 1988 to 1977 =69355*10 693550 Book Value as on 1.1.1998 =2860000-693550 Book Value as on 1.1.1998 2166450 Addition to the Building 715000 Salvage Value of Building 85800 Salvage Value of Addition 28600 Depreciable Amount 2767050 Useful Life 30 Depreciation per year from 1998 to 2015 92235 Total Depreciation from 1998 to 2015 =92235*18 1660230 Book Value as on 1.1.2016 =2166450+715000-1660230 Book Value as on 1.1.2016 1221220 Revised useful Life 20 Depreciation per Year from 2016 61061 Depreciation for the year 2016 61061 Journal Entry No Entry is required for revision of estimate