Budget Hardware Consultants purchased a building for $490,000 and depreciated it

Question

Budget Hardware Consultants purchased a building for $490,000 and depreciated it on a? straight-line basis over a 40?-year period. The estimated residual value is $90,000. After using the building for 15? years, Budget realized that wear and tear on the building would wear it out before 40years and that the estimated residual value should be $80,000. Starting with the 16th? year, Budget began depreciating the building over a revised total life of 35 years using the new residual value. Journalize depreciation expense on the building for years 15 and 16. ?

Record debits? first, then credits. Select the explanation on the last line of the journal entry? table.
(Select one of the following to record for debits, credit, and explanation)
a. Accumulated depreciation-building,
b. accumulated depreciation-equipment,
c. building,
d. cash,
e. depreciation expense-building,
f. depreciation expense-equipment,
g. equipment,
h. to record depreciation on building,
i. to record depreciation on equipment,
j. to record sale of equipment.

Explanation / Answer

Note: The change in estimated useful life and residual value are change in accounting estimates and hence accounted for propectively.

Working:

Depreciable value = $490000 - $90000 = $400000

Annual depreciation = $400000/40 years = $10000

Accumulated depreciation at the end of Year 15 = $10000 x 15 = $150000

Carrying value at the end of year 15 = $490000 - $150000 = $340000

Revised Depreciable value = $340000 - $80000 = $260000

Revised remaining estimated useful life = 35 - 15 = 20 years

Revised annual depreciation = $260000/20 years = $13000

Date General Journal Debit Credit Year 15 Depreciation expense-building 10000 Accumulated depreciation-building 10000 To record depreciation on building) Year 16 Depreciation expense-building 13000 Accumulated depreciation-building 13000 To record depreciation on building)

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