E9-4 Will Smith, the new controller of Fresh Prince Company, has reviewed the ex

Question

E9-4 Will Smith, the new controller of Fresh Prince Company, has reviewed the expected
useful lives and salvage values of selected depreciable assets at the beginning of
2007. Here are his findings:
Accumulated Useful Life
Type of Date Depreciation, (in years) Salvage Value
Asset Acquired Cost Jan. 1, 2007 Old Proposed Old Proposed
Building Jan. 1, 1999 $900,000 $172,000 40 50 $40,000 $47,600
Warehouse Jan. 1, 2001 120,000 27,600 25 20 5,000 3,600
Determine straight-line depreciation
All assets are depreciated by the straight-line method. Fresh Prince Company uses a calendar
year in preparing annual financial statements. After discussion, management has
agreed to accept Will’s proposed changes. (The “Proposed” useful life is total life, not remaining
life.)
Instructions
(a) Compute the revised annual depreciation on each asset in 2007. (Show computations.)
(b) Prepare the entry (or entries) to record depreciation on the building in 2007.

Explanation / Answer

Assets
Cost
Accumulated Dep.
Book value on
Salvage value
Remianing life
1-Jan-07
1-Jan-07
proposed
Building
$900,000
$172,000
$728,000
$47,600
50 yr- 8yr. =42 yr.
Warehouse
$120,000
$27,600
$92,400
$3,600
50 yr - 6yr. = 44 yr.
Book value =
Cost - Acumulated Dep.
Revised Depreciation
Building
Depreciation =
$7,28,000 book value - $47,600 / 42 yearsremaining life
(future period)
=
$6,80,400 / 42
=
$16,200
Warehouse
Depreciation =
$92400 book vlue - $3600 salvage value / 44yearsremaining life
(future period)
=
$88800 / 44
=
$2,018
B.
Record Depreciation for 2007 on building
Dr.
Cr.
31-Dec-07
Depreciation
$16,200
Accumulateddep- building
$16,200

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