Question

Bridge City Consulting bought a building and the land on which it is located for $135,000 cash. The land is estimated to represent 50 percent of the purchase price. The company paid $6,000 for building renovations before it was ready for use. Compute straight-line depreciation on the building at the end of one year, assuming an estimated 10-year useful life and a $4,000 estimated residual value. (Do not round intermediate calculations.) What should be the book value of (a) the land and (b) the building at the end of year 2?

Answer 1

Straight line depreciation expense = (Cost - Residual value) / Years

Cost of Building = ($135,000 * 50%) + Renovation Expense

= $67,500 + $6,000

= $73,500

Straight line depreciation expense = ($73,500 - $4,000) / 10 years

= $69,500 / 10

= $6,950

Depreciation expense at the end of year one = $6,950

Book value at the end of year 2

Land = $135,000 * 50%

= $67,500

Building = Cost - Accumulated depreciation of 2 years

= $73,500 - ($6,950 * 2)

= $73,500 - $13,900

= $59,600