Analyzing the Effects of Repairs, an Addition, and Depreciation (AP8-2)
A recent annual report for FedEx included the following note:
Assume that FedEx made extensive repairs on an existing building and added a new wing. The building is a garage and repair facility for delivery trucks that serve the Denver area. The existing building originally cost $820,000, and by the end of 2010 (10 years), it was half depreciated on the basis of a 20-year estimated useful life and no residual value. Assume straight-line depreciation was used. During 2011, the following expenditures related to the building were made:
a. Ordinary repairs and maintenance expenditures for the year, $7,000 cash.
b. Extensive and major repairs to the roof of the building, $122,000 cash. These repairs were completed on December 31, 2011.
c. The new wing was completed on December 31, 2011, at a cash cost of $230,000.
Required:
1. Applying the policies of FedEx, complete the following, indicating the effects for the preceding expenditures. If there is no effect on an account, write NE on the line.
| Building | Accumulated Depreciation | Depreciation Expense | Repairs Expense | Cash |
Balance January 1, 2011 | $820,000 | $410,000 |
|
|
|
Depreciation for 2011 |
| ________ | ________ |
| ________ |
Balance prior to expenditures | 820,000 | ________ | ________ |
|
|
Expenditure (a) | ________ | ________ | ________ | ________ | ________ |
Expenditure (b) | ________ | ________ | ________ | ________ | ________ |
Expenditure (c) | ________ | ________ | ________ | ________ | ________ |
Balance December 31, 2011 | ________ | ________ | ________ | ________ |
|
2. What was the book value of the building on December 31, 2011?
3. Explain the effect of depreciation on cash flows.
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