Question

Gonzo Co. owns a building in Georgia. The building’s historical cost is $970,000, and $440,000 of accumulated depreciation has been recorded to date. During 2011, Gonzo incurred the following expenses related to the building:
Repainted the building

$ 48,000

Major improvement to the plumbing

109,000

Replaced carpet in the plant’s accounting offices

47,600

Added a 7,000 square foot lobby

234,600

Repaired a broken water main

155,800

Required:

1. Which of the costs incurred by Gonzo Co. should be capitalized to the building account?

2. What is the subsequent carrying amount of the building?

Answer 1

Answer:

1. The cost to be capitalized to building account is $343,600

2. The subsequent carrying amount of the building is $873,600

Explanation:

1. In order to calculate the which of the costs incurred by Gonzo Co. should be capitalized to the building account we would have to use the following formula:

cost to be capitalize=Major improvement to the plumbing+Added a loby

cost to be capitalize=$109,000+$234,600

cost to be capitalize=$343,600

The cost to be capitalized to building account is $343,600

2. To calculate the subsequent carrying amount of the building we have to use the following formula:

subsequent carrying amount=Historical cost+improvements-Accumulated Depreciation

subsequent carrying amount=$970,000+$343,600-$440,000

subsequent carrying amount=$873,600

The subsequent carrying amount of the building is $873,600