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Chapter 11: Q13Q (page 583)

A building that was purchased on December 31, 2003, for $2,500,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded through 2017. During 2018, an examination of the building by an engineering firm discloses that its estimated useful life is 15 years after 2017. What should be the amount of depreciation for 2018?

Short Answer

Expert verified

Depreciation for 2018 is $120,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Depreciation

Depreciation expense is an expense that is incurred on a tangible asset due to obsolescence or the passage of time on that asset. A company has different options for determining depreciation, but straight-line depreciation is the simplest one.

02

Determining the amount of depreciation for 2018

Original estimate

$50,000 per year

Depreciation till December 31, 2017: $50,000 X 14

$700,000

Building value as of January 1, 2018: ($2,500,000 - $700,000)

$1,800,000

Depreciation in 2018

$120,000

Working notes:

Calculating the amount of the original estimate

翱谤颈驳颈苍补濒鈥塭蝉迟颈尘补迟别=颁辞蝉迟鈥塷蹿鈥塨耻颈濒诲颈苍驳贰蝉迟颈尘补迟别诲鈥塴颈蹿别=$250,00050=$50,000



Calculating the depreciation amount


Depreciation=颁辞蝉迟鈥塷蹿鈥塨耻颈濒诲颈苍驳鈭�顿别辫谤别肠颈补迟颈辞苍鈥塼辞鈥塉补苍耻补谤测鲍蝉别蹿耻濒鈥塴颈蹿别=$2,500,000鈭�$700,00015=$120,000


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Most popular questions from this chapter

(Depletion Computations鈥擮il) Diderot Drilling Company has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an average sales price of \(55 per barrel. Total oil resources of this property are estimated to be 250,000 barrels.

The lease provided for an outright payment of \)500,000 to the lessor (owner) before drilling could be commenced and an annual rental of \(31,500. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Diderot (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is \)30,000.

Instructions

From the provisions of the lease agreement, you are to compute the cost per barrel for the past year, exclusive of operating costs, to Diderot Drilling Company. (Round to the nearest cent.)

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