In 1987, Herman Moore Company completed the construction of a building at a cost
ID: 2477469 • Letter: I
Question
In 1987, Herman Moore Company completed the construction of a building at a cost of $2,120,000 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 $63,600 at the end of that time. Early in 1998, an addition to the building was constructed at a cost of $530,000. 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 $21,200. 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 Show List of Accounts 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 Show List of Accounts 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 Show List of Accounts 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
1) Building occupied in year 1988 Depreciation under straight line method is calculated as = (Cost of asset - residual value) / life of asset = (2120000 - 63600) / 40 years 51410 So depreciation from year 1988 to year 1997 would be 51410 each year 2) Depreciation on building occupied on 1988 will remain unchanged as 51410 per year Depreciation on Addition to building = (530000-21200)/30 16960 So depreciation on original building occupied in year 1988 will remain same as 51410 Depreciation on additional building acquired in 1998 will be 16960 per year Annual depreciation = 51410 +16960 , = 68370 3) Depreciation Total depreciation Cost Book Value charged till date at 2015 end Expired life of Building occupied in 1988 28.00 51410.00 1439480.00 2120000 680520.00 Expired life of Building occupied in 1998 18.00 16960.00 305280.00 530000 224720.00 original unexpired Extention Revised life Book Value as New depreciation time as at 2015 end years years at 2015 end 2016 onwards Building occupied in 1988 22.00 30.00 52.00 680520.00 13086.92 Building occupied in 1998 12.00 30.00 42.00 224720.00 5350.476 New depreciation has been calculated using same formaula but no residual value