Question

Tomson Pederson Company constructed a building for their manufacturing
operation at a cost of $3,000,000 and occupied it beginning January, 2008. It was
estimated at that time the building’s life would be 32 years, with no salvage value.

In January 2018, a new insulated passive solar roof was installed at a cost of
$620,000, and it was estimated then that the building would have a useful life of 30
years from that date with a salvage value of $300,000.
The cost of the old roof was $290,000.
Required
(a) What amount of depreciation on the building should have been charged
annually from the years 2008 through 2017? (Assume straight-line depreciation.)
(b) Prepare the journal entry that should be made in 2018 to record the replacement
of the roof with the new insulated passive solar 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?

Answer 1

(a) Annual depreciation from 2008 through 2017 :-

Cost/life = 3,000,000/32

= $93,750

(b) journal entry

Description	Debit	Credit
Building (new roof)	620,000
Accumulated depreciation - building	90,625
Loss on disposal	199,375
Building (old roof)		290,000
Cash		620,000

Accumulated depreciation = 290,0000 x 10/32 = 90,625

Loss on disposal = 290,000 - 90,625 = 199,375

(c) No entry is required

(d) Depreciation for 2018:-

Cost = 3,000,000 + 620,000 - 290,000 = 3,330,000

Accumulated depreciation = 93,750 x 10 = 937,500

Loss on disposal = 199,375

Salvage value = 300,000

Life = 30 years

Depreciation = [(3,330,000 - 937,500 - 199,375) - 300,000]/30

= $63,104.17