Question

Greg Maddox Company constructed a building at a cost of $2,200,000 and occupied it beginning in January 2001. It was estimated at that time that its life would be 40 years, with no salvage value. In January 2021, a new roof was installed at a cost of $300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000. Instructions a. What amount of depreciation should have been charged annually from the years 2001 to 2020? (Assume straight-line depreciation.) b. What entry should be made in 2021 to record the replacement of the roof? c. Prepare the entry in January 2021 to record the revision in the estimated life of the building, if necessary. d. What amount of depreciation should be charged for the year 2021?

Answer 1

Que:-

Parta) What amount of depreciation should have been charged annually from the years 2001 to 2020? ( Assume straight-line depreciation.)

sol:- Depreciation = $2,200,000 / 40 = $55,000

Que Part b) What entry should be made in 2021 to record the replacement of the roof?

Sol:-

Date	Particular	lf	Dr.	Cr.
2021	loss on Disposal of Plant Assets Dr.	(2)	80,000
	Accumulated Depreciation----- Buildings. Dr.	(1)	80,000
	To Buildings			160,000
	Buildings Dr.		300,000
	To Cash			300,000

Working Note:-

1) Depreciation of old roof (2001) = 160,000/40 = 4,000
Depreciation of old roof (2001 to 2020) = 4,000 ×20 = 80,000

2) Cost of old roof = 160,000 Less:- Depreciation = 80,000 Loss on Disposal 80,000 of Plant Assets

Que Part c) ​​​​ Prepare the entry on January 2021 to record the revision in the estimated life of the building, if necessary.

sol:- No entry required

Que Part d) What amount of Depreciation should be charged for the year 2021?
If the cost of the old roof is removed

sol:-

Buildings {(2,200,000-160,000)+300,000}	$2,340,000
Less:- Accumulated Depreciation. {(2,200,000-160,000)÷40×20}	1,020,000
	1,320,000
Remaining useful life	25 years
Depreciation 2021	$ 52,800