Budget Hardware Consultants purchased a building for $490,000
and depreciated it on a? straight-line basis over a 40?-year
period. The estimated residual value is $90,000. After using the
building for 15? years, Budget realized that wear and tear on the
building would wear it out before 40years and that the estimated
residual value should be $80,000. Starting with the 16th? year,
Budget began depreciating the building over a revised total life of
35 years using the new residual value. Journalize depreciation
expense on the building for years 15 and 16. ?
Record debits? first, then credits. Select the explanation on the
last line of the journal entry? table.
(Select one of the following to record for debits, credit, and
explanation)
a. Accumulated depreciation-building,
b. accumulated depreciation-equipment,
c. building,
d. cash,
e. depreciation expense-building,
f. depreciation expense-equipment,
g. equipment,
h. to record depreciation on building,
i. to record depreciation on equipment,
j. to record sale of equipment.
Date | General Journal | Debit | Credit |
Year 15 | Depreciation expense-building | 10000 | |
Accumulated depreciation-building | 10000 | ||
To record depreciation on building) | |||
Year 16 | Depreciation expense-building | 13000 | |
Accumulated depreciation-building | 13000 | ||
To record depreciation on building) |
Note: The change in estimated useful life and residual value are change in accounting estimates and hence accounted for propectively.
Working:
Depreciable value = $490000 - $90000 = $400000
Annual depreciation = $400000/40 years = $10000
Accumulated depreciation at the end of Year 15 = $10000 x 15 = $150000
Carrying value at the end of year 15 = $490000 - $150000 = $340000
Revised Depreciable value = $340000 - $80000 = $260000
Revised remaining estimated useful life = 35 - 15 = 20 years
Revised annual depreciation = $260000/20 years = $13000
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