Question

On January 1, 2011 Paradise, Inc. sold a building to Silverdale, Inc., its whole-owned subsidiary, Paradise paid $1,100,000 for this building originally on 1/1/04. On 1/1/2011, accumulated depreciation was $280,000. Paradise had estimated a salvage value of $100,000 and depreciated the building on a straight-line basis over 25 years, Silverdale estimates that there is still a salvage value of $100,000 and that there are 18 years remaining which matches up with the original estimate of a 25-year life. In the consolidated balance sheet dated December 31, 2012, this machine should be shown as:   

	a.	Cost                    Accumulated Depreciation $900,000             $88,889
	b.	Cost                    Accumulated Depreciation $1,100,000             $360,000
	c.	Cost                    Accumulated Depreciation $1,100,000             $290,000
	d.	Cost   Accumulated Depreciation $900,000 $80,000

Answer 1

Your required answer is option B i.e. Cost $1,100,000 and Accumulated Depreciation $360,000

Explanation:

Building is originally purchased at $1,100,000 therefore building will be valued at same since we are using accumulated depreciation for depreciation of Building.

Depreciation :

So here building is used from 01/01/2004 to 31/12/2012 which means 9 year therefore depreciation for 9 year would be $40,000*9 = $360,000

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