e. Vargo purchased land on 3/1/15 for future expansion at a cost of $90,000. The
ID: 2593732 • Letter: E
Question
e. Vargo purchased land on 3/1/15 for future expansion at a cost of $90,000. They made improvements of $10,000 that will have an indefinite life, and $56,000 of improvements with a 10 year life. uses e. vargo uses straight line depreciation to the nearest month for any land-related items tnat require depreciation. Compute any depreciation necessary for 2017 f. On 8/1/17, Vargo decided to discontinue a segment of their business. The segment, which had a book value of $641,000 was sold for $562,000 on 12/1/17. The segment incurred a loss of $65,000 from 8/1/17 to 12/01/17. All amounts are pre-tax g. Vargo changed accounting methods for revenue recognition during 2017. Had they used the new method in the prior years, the pre-tax cumulative effect would have been to decrease revenues by $210,000. h. Vargo had a flood at one of their warehouses that was unusual and infrequent in nature. The loss from the flood was $144,000 before taxes. i. Vargo pays their salespeople a commission of $2.75 per unit of "tibed" sold. No commissions are paid on sales of "tiderc." Vargo also had the following expenses/revenues during the year: Advertising expense Administrative salaries Sales salaries President's salary Insurance Misc. office expenses Revenue from leasing unused Building space $295,000 852,000 460,000 205,000 52,000 28,500 47,000Explanation / Answer
Since there is no other question for entries f. to i, I assume that the question to be answered is e. Do let me know in the comment if I have missed anything.
e. Land has an indeterminable useful life, it cannot be depreciated. Any improvements made to land are depreciated only if we can estimate a useful life for the same. Since the improvements worth $10,000 have an infinite life, these are not to be depreciated. However, the portion of improvements that do have a useful life, amounting to $56,000 have a 10-year useful life.
Depreciation under straight line = Value of Asset/ Useful life of the asset
Therefore, the depreciation (straight line)for the year = 56,000/10 years = $5,600
Note: It has been assumed that the improvements were made prior to 2017.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.