Question

On January 1, 2020 , WXY Inc. replaced the roof on its warehouse. WXY originally built the warehouse and placed it into service on January 1, 1995. The cost of the building was $1,000,000. The building has been depreciated using the straight-line method over an originally estimated 40-year useful life with an estimated salvage value of $50,000. Based on original construction records, WXY is able to calculate that the old roof's cost and accumulated depreciation are 8% of the amounts for the entire building.

The new roof cost $200,000. WXY estimates that the new roof will extend the useful life of the building by 10 years. When the old roof was removed, the old scrap was simply thrown away.

Which of the following statements it true?

		Accumulated depreciation on the old roof is $50,000 at the time of the replacement.
		The loss on disposal of the old roof is 32,500.
		The carrying value of the old roof is $80,000
		More than one of the other answer choices is correct.
		None of the other answer choices is correct.
		The journal entry to record the cost of the new roof will debit accumulated depreciation for $200,000, because this replacement extends the useful life of the asset.
		The balance in the building account immediately after the removal and replacement journal entries will be $1,200,000.
		The balance in the accumulated depreciation account for the building immediately after the removal and replacement journal entries will be $393,750.

Answer 1

Building
Cost	1,000,000
SV	50,000
Depreciable base	950,000
Life	40 years
Annual depreciation	23,750
Acc Dep On January 1, 2020	593,750
Old Roof
Cost	80,000	8%
Accumulated Depreciation	47,500	8%
Net Carrying value	32,500
More than one of the other answer choices is correct.
Note: The most appropriate entry would be to remove the old roof and record a loss on disposal, because the cost of the old roof is given. Another alternative would be to debit Accumulated Depreciation on the theory that the replacement extends the useful life of the building.
The loss on disposal of the old roof is 32,500.
The journal entry to record the cost of the new roof will debit accumulated depreciation for $200,000, because this replacement extends the useful life of the asset