On April 1, 2020, Renfro Corporation purchased land, a building, and some equipm

Question

On April 1, 2020, Renfro Corporation purchased land, a building, and some equipment for $680,900. The following information is available concerning the property purchased Current Market Value 139,800 382,250 173,750 Equipment . . .. Before the property could be used, Renfro had to spend $20,000 to renovate the building and $11,000 to put the equipment in working order. Assume the equipment was assigned a $10,000 residual value, a 15-year life, and was being depreciated using the straight-Line depreciation methood Calculate the book value of the equipment at December 31, 2027. Do not use decimals in your answer.

Explanation / Answer

Depreciation for equipment : [COst- residual value]/useful life

            = [181000-10000]/15

             = 171000/15

            = $ 11400 per year

Depreciation for 2020 :11400*9/12= 8550      [1April-31dec 2020]

Depreciation for Period 1jan2021-31dec 2027 = 7*11400 = 79800

Total accumulated depreciation Till 31dec 2027 = 8550+79800 = 88350

Book value of equipment at 31 dec2027 =cost-Total accumulated depreciation

        = 181000-88350

       = $ 92650

Market value Market value weights Allocation of purchase cost cost incurred to make asset ready for use Total cost Land 139000 139000/695000=.20 680000*.20= 136000 0 136000 Building 382250 382250/695000=.55 680000*.55= 374000 20000 394000   [374000+20000] Equipment 173750 173750/695000=.25 680000*.25= 170000 11000 181000    [170000+11000] Total market value 695000

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