Question

In 1990, Splish Company completed the construction of a building at a cost of $2,320,000 and first accupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $69,600 at the end of that time Early in 2001 an addition to the building was constructed at a cost of $580,000. At that ti e, it was estimated that the remaining life of the building would be as originally estimated an additional 30 years, and that the ddition would have a life f30 years and a salvage value of $23,200 In 2019, it is determined that the probable life of the building and addition will extend to the end of 20s0, or 20 years beyond the original estimate. Using the straight-line method, compute the annual depreciation that would have been charged from 1991 through 2000D Annual depreciation from 1991 through 2000 yr SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Compute the annual depreciation that would have been charged from 2001 through 2018. Annual depreciation from 2001 through 2018 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles s and Explanation Debit Credit

Answer 1

A)      annual depreciation from 1991 through 2000 :

Annual Depreciation Using the straight-line method =[Cost -  salvage value] / Useful life

= ($2320000 - $69600)/40

= $2250400/40

= $56260 per year

B)    annual depreciation from 2001 through 2018:

Depreciation of Addition to the building  = [cost of $580,000 - salvage value of $23200] / 30 years

= $556800/30

= $18560 per year

Total annual depreciation from 2001 through 2018 =

= $56260 + $18560

= $74820

C)

  "No entry" , retrospective effect will be given after 2019

D)

Total useful life remaining of Building occupied from 1991 = 40 years - 28 years used life = 12 years

Note:-   28 years =   10 years from 1991 through 2000 + 18 years from 2001 through 2018

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

Now, New useful life of Building = 12 years + 20 years = 32 years

annual depreciation of Building = [2320000 - {depreciation($56260 × 28)} - salvage value ] / useful life

= [$2320000 - $1575280 - $69600]/ 32 years

= $675120/32

= $21097.5

Total useful life remaining of Addition of Building = 30 years - (18 years from 2001 through 2018 used). = 12 years

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

Now, New useful life of Addition = 12 years + 20 years = 32 years

annual depreciation of Addition = [ 580000 - depreciation{$18560 × 18} - salvage value $23200] / 32 years

= ($580000 - $334080 - $23200)/32

= $222720/32

= $6960 per year

Therefore , annual depreciation to be charged, beginning with 2019 = $21098 + $6960

= $28058 per year

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