Question

Shahia Company bought a building for $77,000 cash and the land on which it was located for $110,000 cash. The company paid transfer costs of $19,000 ($6,000 for the building and $13,000 for the land). Renovation costs on the building before it could be used were $31,000.

2. Compute straight-line depreciation at the end of one year, assuming an estimated 10-year useful life and a $10,000 estimated residual value.

Answer 1

To compute straight-line depreciation for one year, we need to first find the depreciable cost of the building, which is the cost of the building minus the estimated residual value.

Depreciable cost of the building = Cost of building - Estimated residual value

= $77,000 - $10,000

= $67,000

Next, we need to divide the depreciable cost by the estimated useful life to get the annual depreciation expense.

Annual depreciation expense = Depreciable cost / Estimated useful life

= $67,000 / 10

= $6,700

Therefore, the straight-line depreciation at the end of one year is $6,700.