(Depreciation—Replacement, Change in Estimate) Greg Maddox Company constructed a building at a cost of $2,200,000 and occupied it beginning in January 1998. It was estimated at that time that its life would be 40 years, with no salvage value.In January 2018, a new roof was installed at a cost of $300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000.Instructions(a) What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)(b) What entry should be made in 2018 to record the replacement of the roof?(c) Prepare the entry in January 2018 to record the revision in the estimated life of the building, if necessary.(d) What amount of depreciation should be charged for the year 2018?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
(
In January 2018, a new roof was installed at a cost of $300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000.
Instructions
(a) What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)
(b) What entry should be made in 2018 to record the replacement of the roof?
(c) Prepare the entry in January 2018 to record the revision in the estimated life of the building, if necessary.
(d) What amount of depreciation should be charged for the year 2018?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
