Houston’s Shredding Service has just completed a minor repair on a shredding mac

Question

Houston’s Shredding Service has just completed a minor repair on a shredding machine. The repair cost was $1,200, and the book value prior to the repair was $5,330. In addition, the company spent $9,500 to replace the roof on a building. The new roof extended the life of the building by five years. Prior to the roof replacement, the general ledger reflected the Building account at $89,400 and related Accumulated Depreciation account at $41,200. After the work was completed, what book value should Houston’s report on the balance sheet for the shredding machine and the building?

Explanation / Answer

As the amount incured is for minor repair so the repair cost of $ 1200 , must ne expensed out to profit and loss satement , and book value of shredding machine will remain same as $ 5330. the amount spend for replace of the building roof, must be added to the book value , because life of the building has extended to 5 years , so book value of building will be reported as $98900 ((89400+9500)

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