Question

Discount Hardware Consultants purchased a building for $485,000 and depreciated it on a straight-line basis over a 35-year period. The estimated residual value is $100,000. After using the building for 15 years, Discount realized that wear and tear on the building would wear it out before 35 years and that the estimated residual value should be $84,000. Starting with the 16th year, Discount began depreciating the building over a revised total life of 20 years using the new residual value. Journalize depreciation expense on the building for years 15 and 16. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Begin by journalizing the depreciation on the building for year 15. Accounts and Explanation Credit Date Debit Accumulated Depreciation-Building Accumulated Depreciation-Equipment Building Cash Depreciation Expense-Building Depreciation Expense-Equipment Equipment

Answer 1

Calculation of old depreciation = Cost of building - Estimated residual value / Useful life

= ($485,000 - $100,000) / 35 years

= $11,000

Depreciation expense for year 15 = $11,000

Book value of building at end of the year 15 = Cost of building - Accumulated depreciation

= $485,000 - ($11,000 * 15 years)

= $320,000

Revised total useful life = 20 years

Remainder useful life = 20 years - 15 years = 5 years

Calculation of revised depreciation = Book value of building at end of the year 15 - Estimated residual value / Remainder useful life

= $320,000 - $84,000 / 5

= $47,200

Journal entries:

Year	Account	Debit	Credit
2015	Depreciation expense - building	$11,000
	Accumulated depreciation - building		$11,000
2016	Depreciation expense - building	$47,200
	Accumulated depreciation - building		$47,200