On March 31, 2018, Susquehanna Insurance purchased an office building for $14,70

Question

On March 31, 2018, Susquehanna Insurance purchased an office building for $14,700,000. Based on their relative fair values, one- third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,290,000 and $790,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows: Service Life 25 20 10 Residual Value Building Furniture and fixtures Office equipment 5% of cost 5% of cost $39,000 Required: Calculate depreciation for 2018 and 2019. (Do not round intermediate calculations.) Depreciation 2018 2019 Building Funiture and fixtures Office equipment

Explanation / Answer

Calculation of depreciation:

Building
Building value = $14,700,000 x 2/3 = $9,800,000
Residual value = $9,800,000 x 5% = $490,000
Depreciation (SLM Basis) = (Book value - Residual value) / Life = (9,800,000-490,000) / 25 = $372,400

Furniture and fixtures
SLM depreciation rate = 20 year = 5%
Double decline rate = 5 x 2 = 10%
Depreciation 2018 = 1,290,000 x 10% = $129,000
Depreciation 2019 = (1,290,000 - 129,000) x 10% = $116,100

Office equipment
SLM depreciation rate = 10 year = 10%
Double decline rate = 10 x 2 = 20%
Depreciation 2018 = 790,000 x 20% = $158,000
Depreciation 2019 = (790,000 - 158,000) x 20% = $126,400

Depreciation 2018 2019 Building $372,400 $372,400 Furniture and fixtures $129,000 $116,100 Office equipment $158000 $126,400

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