Computing and Recording Cost and Depreciation of Assets (Straight-Line Depreciation) Shahia Company bought a building for $382,000 cash and the land on which it was located for $107,000 cash. The company paid transfer costs of $9,000 ($3,000 for the building and $6,000 for the land). Renovation costs on the building before it could be used were $21,000.
Required:
1. Give the journal entry to record the purchase of the property, including all relevant expenditures. Assume that all transactions were for cash and that all purchases occurred at the start of the year.
2. Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful life and a $15,000 estimated residual value.
3. What would be the net book value of the property (land and building) at the end of Year 2?

Question

09-11-2019
Business

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Computing and Recording Cost and Depreciation of Assets (Straight-Line Depreciation) Shahia Company bought a building for $382,000 cash and the land on which it was located for $107,000 cash. The company paid transfer costs of $9,000 ($3,000 for the building and $6,000 for the land). Renovation costs on the building before it could be used were $21,000.
Required:
1. Give the journal entry to record the purchase of the property, including all relevant expenditures. Assume that all transactions were for cash and that all purchases occurred at the start of the year.
2. Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful life and a $15,000 estimated residual value.
3. What would be the net book value of the property (land and building) at the end of Year 2?

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Adedokuntunde6 Adedokuntunde6 · Answer 1 · 2019-11-10T13:12:45+01:00

Answer:

Explanation:

1.Journal entry

Dr: building $406,000 Dr: land $ 113,000

Total cost of the property

Building =382,000+3,000+21,000=406,000

Land

= 107,000+6000=113,000

2. To compute the straight line depreciation

Cost - Salvage value / Useful life

For land : Cost = $ 382,000 , Salvage value = $15,000, Useful life = 10 years

382,000 - 15,000/10

= 367,000/10

= 36,700

Therefore yearly depreciation = $36,700

Land on the other hand cannot be depreciated because, It is an asset that can last for a very long time, instead it appreciate in value.

3. Net Book value for building

First year cost - Depreciation

382,000 - 36,700 = 345,000

Second year cost - Depreciation

345,000 - 36,700 = 308,000

Therefore the Net Book value of the building after two years = $308,000, while the land would have appreciated in value.

topeadeniran2 topeadeniran2 · Answer 2 · 2021-10-28T09:51:40+02:00

The net book value of the property (land and building) at the end of Year 2 is $440800.

The journal entry to record the purchase of the property will be:

Debit- Building Asset $382000 + $3000 + $21000 = $406000

Debit- Land $107000 + $6000 = $113000

Credit Cash $382000 + $107000 + $9000 + $21000 = $519000

(Being cash paid for asset acquisition)

The straight line depreciation will be:

Depreciation = (Acquisition cost - Residual value) / Useful life

Acquisition cost = $382000 + $3000 + $21000 = $406000

Therefore, depreciation = ($406000 - $15000) / 10

= $391000 / 10

= $39100

The net book value of the property at end of year 2 will be:

Building = $406000

Less Accumulated Depreciation = ($39100 × 2) = $78200

Add: Land = $113000

Net book value = $440800

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