Answer:
Part 1
D.E = $5,300
Part 2
a. Book Value = $61,900
b. Book Value = $122,500
Explanation:
Step 1 : Determine the Cost of Buildings
<em>Separate the Cost of Land and the Cost of Building from the Purchase Price</em>
<u>Calculation of the Cost of Building</u>
Purchase Price ($175,000 x 30%) $52,500
Building Renovations $20,000
Total $72,500
Step 2 : Depreciation calculation
<em>Depreciation expense = (Cost - Residual Value) ÷ Useful Life</em>
= ($72,500 - $19,500) ÷ 10
= $5,300
After Year 2
<u>Buildings :</u>
Accumulated Depreciation = $10,600
Book Value = $72,500 - $10,600 = $61,900
<u>Land </u>
Book Value = $175,000 x 70% = $122,500
Note : Land is not depreciated
