Question

Shahia Company bought a building for $88,000 cash and the land on which it was located for $117,000 cash. The company paid transfer costs of $16,000 ($4,000 for the building and $12,000 for the land). Renovation costs on the building before it could be used were $25,000. 2. Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful life and a $8,000 estimated residual value.

Answer 1

Answer:

Depreciation amount at the end of one year is $10,900

Explanation:

Land is not depreciated because land is assumed to have an unlimited useful life. Building is a long lived assest and it has limited useful lives. Therefore, building is depreciated assets.

The building acquisition cost is = Building transaction value + building transfer costs + Renovation cost

= $88,000 + $4,000 + $25,000

= $117,000

Depreciation value = The building acquisition cost - The residual value

= $117,000 - $8,000

= $109,000

Depreciation amount under the Straight-line method is calculated as below:

Yearly depreciation = $\frac{Depreciation Value}{Useful life}$

= $\frac{109,000}{10}$

= $10,900