Danny Venable, the new controller of Seratelli Company, has reviewed the expecte

Question

Danny Venable, the new controller of Seratelli Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2014. Here are his findings: Type of Date Accumulated Depreciation, Useful Life (in years) Salvage Value Asset Acquired Cost Jan. 1, 2014 Old Proposed Old Proposed Building Jan. 1, 2006 $733,900 $135,318 40 48 $57,310 $35,340 Warehouse Jan. 1, 2009 127,900 24,570 25 20 5,050 5,360 All assets are depreciated by the straight-line method. Seratelli Company uses a calendar year in preparing annual financial statements. After discussion, management has agreed to accept Danny’s proposed changes. (The “Proposed” useful life is total life, not remaining life.) Collapse question part (a) Correct answer. Your answer is correct. Compute the revised annual depreciation on each asset in 2014. (Round answers to 0 decimal places, e.g. 125.) Building Warehouse Revised annual depreciation $Entry field with correct answer 14081.05 $Entry field with correct answer 6531.33 SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT Attempts: 5 of 5 used Collapse question part (b) Prepare the entry (or entries) to record depreciation on the building in 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Explanation / Answer

1.

Building was purchased on Jan. 1, 2006. Since then 8 years of its useful life has been expired. Therefore, its remining useful life as per the proposal is 40 years. Accumulated depreciation on Jan. 1, 2014 is $135,318 and the proposed salvage value is $35,340.

Useful life of the building on Jan. 1, 2014 = 48 year - 8 years = 40 years

Book value of the building on Jan. 1, 2014 = $733,900 - $135,318 = $598,582

Salvage value = $35,340

Therefore,

Depreciation on building for 2014 = ($598,582 - $35,340) / 40 = $14,081.05

Warehouse was purchased on Jan. 1, 2009. Since then 5 years of its useful life has been expired. Therefore, its remining useful life as per the proposal is 15 years.Accumulated depreciation on Jan. 1, 2014 is $24,570. Also, the proposed salvage value is $5,360.

Useful life of the building on Jan. 1, 2014 = 20 years - 5 years = 15 years

Book value of the building on Jan. 1, 2014 = $127,900 - $5,360 = $122,540

Salvage value = $5,360

Therefore,

Depreciation on warehouse for 2014 = ($122,540 - $5,360) / 15 = $7,812

2.

Journal entry to record depreciation on building for 2014 should be prepared is as folllows:

Dr. Debreciation Expense - Building $14,081.05

Cr. Accumulated Depreciation - Building $14,081.05

Journal entry to record depreciation on warehouse for 2014 should be prepared is as folllows:

Dr. Debreciation Expense - Warehouse $7,812

Cr. Accumulated Depreciation - Warehouse $7,812

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