can someone help me resolve this question. thank you Exercise 8-15 Extraordinary
ID: 2467259 • Letter: C
Question
can someone help me resolve this question. thank you
Exercise 8-15 Extraordinary repairs; plant asset age LO C3
Martinez Company owns a building that appears on its prior year-end balance sheet at its original $660,000 cost less $495,000 accumulated depreciation. The building is depreciated on a straight-line basis assuming a 20-year life and no salvage value. During the first week in January of the current calendar year, major structural repairs are completed on the building at a $66,000 cost. The repairs extend its useful life for 5 years beyond the 20 years originally estimated.
1. Determine the building's age (plant asset age) as of the prior year-end balance sheet date.
2 Prepare the entry to record the cost of the structural repairs that are paid in cash
3. Determine the book value of the building immediately after the repairs are recorded.
4. Prepare the entry to record the current calendar year's depreciation.
Explanation / Answer
Answer:
1) The building’s age as of the prior year-end balance sheet date was remains only for 5 years.
Since the original cost of building = $660,000
Salvage Value = 0
Expected life of building when it was purchased = 20 years
Annual Depreciation using straight line method = (Cost of Building – Salvage value) / useful life = $660,000 / 20 = $33,000
Since accumulated depreciation balance as of the prior year-end balance sheet date = $495,000
It means $495,000 depreciation has already been charged to Building A/c..
Depreciation of $495,000 is for the total number of years = $495,000 / $33,000 = 15 Years
It means 15 Years has already been passed and only 5 Years are left of building’s age as of the prior year-end balance sheet date.
2)
Entry to record the cost of the structural repairs that are paid in cash
Account Title
Debit
Credit
Building A/c (Plant Asset) Dr.
$66,000
To Cash A/c
$66,000
(Being major structural repair are completed on the building and capitalized in the cost of building since it will increase the useful life of building to further 5 years beyond its original estimated life)
3)
Book Value of Building immediately after the repair are recorded = Book Value of Building on the beginning of current year + Repair Amount
Book Value of Building on the beginning of current year = $660,000 - $495,000 = $165,000
Repair Amount = $66,000
Book Value of Building immediately after the repair are recorded = $165,000 + $66,000 = $231,000
4)
Entry to record the current calendar year's depreciation.
Current Year Depreciation Amount = Book Value of building after repair / Estimated Useful Life after repair
= $231,000 / (5+5) = $23,100
Account Title
Debit
Credit
Depreciation Expenses Dr.
$23,100
To Accumulated Depreciation on Building
$23,100
(Being depreciation expenses of current year are recorded)
Account Title
Debit
Credit
Building A/c (Plant Asset) Dr.
$66,000
To Cash A/c
$66,000
(Being major structural repair are completed on the building and capitalized in the cost of building since it will increase the useful life of building to further 5 years beyond its original estimated life)
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