Exercise 11-12 In 1990, Herman Moore Company completed the construction of a bui

Question

Exercise 11-12 In 1990, Herman Moore Company completed the construction of a building at a cost of $2,000,000 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 $60,000 at the end of that time Early in 2001, an addition to the building was constructed at a cost of $500,000. 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 $20,000. 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 Using the straight-line method, compute the annual depreciation that would have been charged from 1991 through 2000. Annual depreciation from 1991 through 2000 /yr Compute the annual depreciation that would have been charged from 2001 through 2018. Annual depreciation from 2001 through 2018 yr. SHOW LEST Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automaticaly indented when amount is entered. Do not indent nmanually.) Account Tities and Explanation Debit Credit 11/8/2017

Explanation / Answer

In january 1991 Buildng Cost is $2,000,000 Estimated Salvage value $60,000 Estimated Useful life 40 Years 1) Annual Depreciation from 1991 through 2000 ($ 2000000-$60000)/40 $48,500 In 2001 Additional construction cost is $500,000 Salvage value $20,000 Estimated Useful life 30 Years 2) Annual Depreciation from 2001 through 2018 ($ 2000000-$60000)/40 +(500000-20000)/30 $64,500 In 2019 Estimated Useful life of orginal plus addition increased to 2050 i.e. 20 year Total Depreciation upto 2018 $48500*10+$64500*8 $1,001,000 3) Annual Depreciation to be charged beginning 2019 (Carrying amount( 2019)-salvage value)/remaining useful life Carrying amount 2019 $2000000+$500000-$1001000 $1,499,000 Annual Depreciation to be charged beginning 2019 ($1499000-$60000-$20000)/42 $33,786

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