E11-13 (L01,2) (Depreciation—Replacement, Change in Estimate) Greg Maddox Company constructed a building at a cost of...
E11-13 (L01,2) (Depreciation—Replacement, Change in Estimate) Greg
Maddox Company constructed a building at a cost of $2,200,000 and
occupied it beginning in January 1998. It was estimated at that
time that its life would be 40 years, with no salvage value.
In January 2018, a new roof was installed at a cost of $300,000,
and it was estimated then that the building would have a useful
life of 25 years from that date. The cost of the old roof was
$160,000.
Instructions (a) What amount of depreciation should have been
charged annually from the years 1998 to 2017? (Assume straight-line
depreciation.)
(b) What entry should be made in 2018 to record the replacement of
the roof? (c) Prepare the entry in January 2018 to record the
revision in the estimated life of the building, if necessary. (d)
What amount of depreciation should be charged for the year
2018?
Homework Answers
(a) What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)
| depriciation charged annually | = | (cost - salvage value ) / years |
| cost = | 22,00,000 | |
| salvage value = | 0 | |
| years | 40 | |
| depreciation charged annually | (2200000-0)/40 | |
| $55000 | ||
(b) What entry should be made in 2018 to record the replacement of the roof?
| s.no | account titles and explanation |
debit$ |
credit $ |
|
| 1 |
loss on disposal of plant assets |
80000 | ||
| accumulated dep. - building(160000/40)*20 | 80000 | |||
| to building | 160000 | |||
| (being the disposal/disposition of roof recorded) | ||||
| 2 | building | 300000 | ||
| to cash | 300000 | |||
| (installation of new room recoded) | ||||
(c) Prepare the entry in January 2018 to record the revision in the estimated life of the building, if necessary.
| no such entry required |
(d) What amount of depreciation should be charged for the year 2018?
| depreciation for 2018 can be seen in two scenarios | ||||||
| assuming the cost of new roof is debited to accumulated depreciation | assuming the cost of old roof is removed | |||||
| book value before replacement | 2200000-(55000*20) | 1100000 | building value | 2200000-160000+300000 | 2340000 | |
| add;cost of new roof | 300000 | less: accumulated dep | (55000*20)-80000 | 1020000 | ||
| total | 1400000 | total | 1320000 | |||
| remaining life in years | 25 YRS | remaining life | 25 YRS | |||
| depreciation for 2018 can be seen in two scenarios | 1400000/25 | 56000$ | depreciation | 1320000/25 | $52800 | |
HOPE THIS WAS HELPFUL. DO CONSIDER GIVING THIS A THUMPS UP.
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