Question

Martinez Company owns a building that appears on its prior year-end balance sheet at its original $510,000 cost less $382,500 accumulated depreciation. The building is depreciated on a straight-line basis assuming a 20-year life and no salvage value. During the first week in January of the current calendar year, major structural repairs are completed on the building at a $51,000 cost. The repairs extend its useful life for 5 years beyond the 20 years originally estimated. 1. Determine the building's age (plant asset age) as of the prior year-end balance sheet date. 2. Prepare the entry to record the cost of the structural repairs that are paid in cash. 3. Determine the book value of the building immediately after the repairs are recorded. 4. Prepare the entry to record the current calendar year's depreciation

Answer 1

1) For finding the age of the building we need to determine the annual depreciation along with accumulated depreciation. Annual depreciation expense is = (Cost-salvage value)/Life of the building - (510000-0)/20 = $ 25,500). Building age is = (Accumulated Depreciation/Annual depreciation) Building age is = (382500/25500) Building age is = 15 years Building's age (plant asset age) as of the prior year-end balance sheet date is 15 years 2) Credit $ Date Jan Debit $ 51,000 Accounts Title & Explanation Building To Cash (Entry for major structural repairs of building) 51,000 Book value of the building immediately after the repairs :- Book value after repairs is = (Cost-Accumulated depreciation+Repairs) Book value after repairs is = (510000-382500+51000) Book value after repairs is = $ 178,500/. 4) Entry to record the current calendar year's depreciation :: Revised estimated life is computed as original remaining life of 5 years (20 years - 15 years) plus extend of useful life of 5 years. So remaining total life of building is 10 years. Book value after repairs $ 178,500 is to be depreciated with 10 years of useful life. Annual depreciation is = (178500/10) = $ 17,850/. Credits Date Dec Debit $ 17,850 Accounts Title & Explanation Depreciation expense - Building To Accumulated depreciation - Building (Entry for Depreciation expense for the year) 17,850