Exercise 11-12 In 1990, Buffalo Company completed the construction of a building
ID: 2526332 • Letter: E
Question
Exercise 11-12 In 1990, Buffalo Company completed the construction of a building at a cost of $2,180,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $65,400 at the end of that time. Early in 2001, an addition to the building was constructed at a cost of $545,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $21,800. In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.Explanation / Answer
The annual depreciation that would have been charged from 2001 through 2018 is $70,305
From 1990 – 2001
Depreciation = ($2180000 - $65400 ) / 40 = $52,865
From 2002 – 2018
Depreciation = ($545000 - $21800 ) / 30 = $17,440
Annual depreciation that would have been charged from 2001 through 2018
= $52865 + $17440
= $70,305
Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019
“No Entry” is required
Compute the annual depreciation to be charged, beginning with 2019
Years depreciated 28 (From 1988 - 2015 - beginning of 1988)
Cost 2180000
Depreciation 1480220
Book Value 699780
Salvage Value 65400
634380
Remaining useful life 32 Years
Annual Depreciation $19,824
(ADDITION) 18 Years
Cost $545000
Depreciation $313920
Book Value 231080
Salvage Value 21800
209280
Depreciation 6,540
“Annual Depreciation Expense – Building = $19,824 + $6540 = $26364”
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