Question

Required Information E9-2 Computing and Recording a Basket Purchase and Straight-Line Depreciation (LO 9-2, LO 9-3) {The following Information applies to the questions displayed below) Bridge City Consulting bought a building and the land on which it is located for $135,000 cash. The land is estimated to represent 50 percent of the purchase price. The company paid $6.000 for building renovations before it was ready for use E9-2 Part 3 and 4 3. Compute straight-line depreciation on the building at the end of one year, assuming an estimated 10-year useful life and a $4,000 estimated residual value. (Do not round Intermediate calculations.) 4. What should be the book value of (a) the land and (b) the building at the end of year 2?

Answer 1

3	Straight Line Depreciation	$6,950
4 (a)	Land ($135,000 * 50%)	$67,500
4 (b)	Building	$59,600

Explanation:

Cost of building = ($135,000 * 50%) + $6,000 = $73,500

Depreciation on building at the end of one year = ($73,500 - $4,000) / 10 years

= $6,950.

Book value of building at the end of year 2 = $73,500 - ($6,950 * 2 years) = $59,600,