Chapter 7, Problem 72APSA

Expenditures After Acquisition

Pasta, a restaurant specializing in fresh pasta, installed a pasta cooker in early 2017 at a cost of $12,400. The cooker had an expected life of 5 years and a residual value of $900 when installed. As the restaurant’s business increased, it became apparent that renovations would be necessary so the cooker’s output could be increased. In January 2020, pasta $8,200 to install new heating equipment and $4,100 to add pressure-cooking capability. After these renovations, Pasta estimated that the remaining useful life of the cooker was 10 years and that the residual value was now $1,500.

Required:

1. Compute 1 year’s straight-line depreciation expense on the cooker before the renovations.

2. Assume that 3 full years of straight-line depreciation expense had been recorded on the cooker before the renovations were made. Compute the book value of the cooker immediately after the renovations were made.

3. Compute 1 year’s straight-line depreciation expense on the renovated cooker.