Question

Bridge City Consulting bought a building and the land on which it is located for $120,000 cash. The land is estimated to represent 70 percent of the purchase price. The company paid $10,000 for building renovations before it was ready for use. 3.	Compute straight-line depreciation on the building at the end of one year, assuming an estimated 10-year useful life and a $13,000 estimated residual value. (Do not round intermediate calculations.)

     

4.	What should be the book value of (a) the land and (b) the building at the end of year 2?

     

Answer 1

Total Cost of Land and Building(100%) = $120,000

Cost Of Land(70%) = $84,000

Cost Of Building(30%) = $36,000

Cost Of Building Renovations = $10,000

Total Cost of Building = ($36,000+$10,000) = $46000

Req.3

Annual Depreciation(Year End Depreciation) = (Cost of Building - Residual Value)/ No. of Years

= ($46,000 - $13,000)/10

= $3,300

Req. 4

Book Value of Land at the end of two years = $84,000

Book Value of Building at the end of two years = $46,000 - (3300*2 year)

= $39,400

Hence, Book Value of Land and Building at the end of two year is = $84,000 + $39,400

= $123,400