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In 1990, Flounder Company completed the construction of a building at a cost of $2,300,000 and...

In 1990, Flounder Company completed the construction of a building at a cost of $2,300,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $69,000 at the end of that time.

Early in 2001, an addition to the building was constructed at a cost of $575,000. 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 $23,000.

In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

a) Using the straight-line method, compute the annual depreciation that would have been charged from 1991 through 2000.

Annual depreciation from 1991 through 2000

b) Compute the annual depreciation that would have been charged from 2001 through 2018.

Annual depreciation from 2001 through 2018

c) Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019.

d) Compute the annual depreciation to be charged, beginning with 2019. (Round answer to 0 decimal places, e.g. 45,892.)

Annual depreciation expense—building

Solutions

Expert Solution

A. Annual depreciation( Straight line method ) = [ Cost of the asset - Salvage value ] / Useful life of the asset

Given, Cost of the asset ( building ) = $ 2300000

Salvage value = $ 69000

Useful life of the asset = 40 years

Depreciation = [$ 2300000 - $ 69000] / 40 = $ 55775 a year

Under Straight line method depreciation is same as each year.

B. Addition of the buliding,    Depreciation = [ $ 575000 - $ 23000] / 30 = $ 18400 a year

Building = $ 55775 , addition = $ 18400

   New calculated depreciation = [$ 55775 + $ 18400 ] = $ 74175 a year

C. Entry is not necessery.

D. Revised annual depreciation

   Building ( book value ) =[ $2300000- (55775 * 28 )] - 69000

   = [2300000- 1561700 ] - 69000

   = 669300 / 32 years = $ 20916

Addition = [$ 575000 - ( 18400 * 18 ) ] - $23000

=[ 575000 - 331200] - 23000

= 220800 / 32 years = $6900

Annual depreciation expenses building = ($ 20916 + $ 6900) = $27816

ekkarill92 answered 1 year ago
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