On January 1, Tolson Company purchased a building by paying $85,000. The building has an estimated life of 40 years and an estimated residual value of $5,000. At December 31, for what gross value will the building appear on the balance sheet? How much accumulated depreciation will be reported at that same date? What will be the net book value of the building on December 31?
First Journal
Jan 1 Building - Debit $85,000
Cash - Credit $85,000
Second Journal
Dec 31 Depreciation expense Debit $2000
Accumulated Depreciation Credit $2000
Straight-line depreciation - Subtract the salvage value from the asset cost to get total depreciation, then divide that by useful life to get annual depreciation.
85,000 - 5,000= 80,000/12=2,000
Gross Value at Dec 31 = $ 85,000
Depreciation per annum = (85,000 - 5,000)/40 = $ 2,000
Accumulated Depreciation at Dec 31 = $ 2,000
Net Value on Dec 31 = Gross Value - Accumulated Depreciation = 85,000 - 2,000
= $ 83,000
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