In 1987, Herman Moore Company completed the construction of a building at a cost
ID: 2483987 • Letter: I
Question
In 1987, Herman Moore Company completed the construction of a building at a cost of $4,700,000 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 $141,000 at the end of that time. Early in 1998, an addition to the building was constructed at a cost of $1,175,000. 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 $47,000. 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 Link to Text 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 $
Explanation / Answer
Answer:
According to the straight line method, Depreciation is computed as: (Original cost - Salvage value)/ useful life
Annual depreciation that would have been charged from 1988 through 1997 :
(4,700,000 - 141,000)/40 = $113975 a year
Annual depreciation that would have been charged from 1998 through 2015:
Building = $113975 a year (computed above)
Annual depreciation for Addition made = (1,175,000 - 47,000)/ 30 = $37600 a year
New calculated depreciation = $113975+$37600 = $151575 a year