Murray\'s Fish Market, a store that specializes in providing fresh fish to the N
ID: 2445265 • Letter: M
Question
Murray's Fish Market, a store that specializes in providing fresh fish to the Nashville, Tennessee, area, installed a new refrigeration unit in January 2012 at a cost of $27,500. The refrigeration unit has an expected life of 8 years and a residual value of $500 when installed. As the fish market's business increased, it became apparent that renovations were necessary so that the capacity of the refrigeration unit could be increased. In January 2014, Murray's spent $18,785 to install an additional refrigerated display unit (that was connected to the original unit) and replace the refrigeration coils. After this addition and renovation, Murray's Fish Market estimated that the remaining useful life of the original refrigeration unit was 12 years and that the residual value was now $1,000.
Required:
1. Compute 1 year's straight-line depreciation expense on the refrigeration unit before the addition and renovations.
$ per year
2. Assume that 2 full years of straight-line depreciation expense were recorded on the refrigeration unit before the addition and renovations were made. Compute the book value of the refrigeration unit immediately after the renovations were made.
$
3. Compute 1 year's straight-line depreciation expense on the renovated refrigeration unit. Round your answer to the nearest dollar.
$ per year
Explanation / Answer
1.
Cost of refrigeration unit as on January 2012 $27,500
Less : Scrap value 500
Amount that to be depreciated in 8 years $27,000
Annual amount of depreciation = 27000 / 8 = $3,375
2. Book value of the refrigeration unit immediately after the renovations
Value of the refrigeration unit immediately before renovations = 27000 – (3375 +3375)
= $20,250
Add: Amount spent on renovations $18,785
Thus Book value of the refrigeration after the renovations = $39,035
3. Depreciation expense on the renovated refrigeration unit =
Book value of refrigeration unit as on January 2014 $39,035
Less : Scrap value 1,000
Amount that to be depreciated in 12 years $38,035
Annual amount of depreciation = 38,035 / 12 = $3,170 Approx.
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