On March 31, 2018, Susquehanna Insurance purchased an office building for $13,200,000. Based on their relative...

On March 31, 2018, Susquehanna Insurance purchased an office building for $13,200,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,240,000 and $740,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows: Service Life Residual Value Building 30 10% of cost Furniture and fixtures 10 10% of cost Office equipment 5 $34,000 Required: Calculate depreciation for 2018 and 2019.

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Expert Solution

Purchase value of land = $13,200,000/3 = $4,400,000
Purchase value of building = $13200000-4400000 = 8,800,000                     Straight Line Method
Purchase value of Furniture & Fixture = $1,240,000                                  Double Declining Method
Purchase value of Office Equipment = $740,000                                      Double Declining Method

Depreciation on Building:
Service Life = 30 years                      Residual Value = 10% of cost = 880,000
Depreciation = (8,800,000 - 880,000)/30 = 264000 per annum
For 2018 = 264000/12*9 = 198000                                             (Assuming Calender Year from January to March)
For 2019 = 264000

Depreciation on Furniture & Fixture:
Service Life 10 years Residual Value = 10% of cost = $124,000
Depreciation rate = ((1240000-124000)/10)/(1240000-124000) = 0.10 or 10%*200% = 20%
Depreciation For 2018 = 1240000*20%/12*9 = $186000
For 2019 = (1240000-186000)*20%= $210800

Depreciation on Office Equipment:
Service Life 5 years Residual Value = 34000
Depreciation rate = ((740000-34000)/5)/(740000-34000) = 20% *200% = 40%
Depreciation for 2018 = 740000*40%*9/12 = $222000
For 2019 = (740000-222000)*40% = $207200

ekkarill92 answered 1 year ago

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