Question

On March 31, 2021, Susquehanna Insurance purchased an office building for $13,200,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,400,000 and $900,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows:

	Service Life	Residual Value
Building	25	5% of cost
Furniture and fixtures	10	5% of cost
Office equipment	5	$50,000

Required:
Calculate depreciation for 2021 and 2022. (Do not round intermediate calculations.)

	Depreciation 2021 2022 Building Furniture and fixtures Office equipment

Answer 1

Building price = $13,200,000 * 2/3 = $8,800,000

Building salvage value = $8,800,000 * 5% = $440,000

Depreciation under Straight line method = (Cost - Salvage value) / Estimated useful life

= ($8,800,000 - $440,000) / 25

= $334,400

Depreciation under double-declining balance method = (Cost - Accumulated depreciation) / Useful life * 2

	2021	2022
Building	$334,400	$334,400
Furniture and fixtures	$280,000 [($1,400,000-$0)/10*2]	$224,000 [($1,400,000-$280,000)/10*2]
Office equipment	$360,000 [($900,000-$0)/5*2]	$216,000 [($900,000-$360,000)/5*2]