Final answer:
The annual depreciation expense of the office building is $100,000. It is calculated by subtracting the salvage value from the purchase price and then dividing by the useful life. For the second year, the depreciation expense remains the same at $100,000.
Step-by-step explanation:
The student is asking how to calculate the depreciation expense for the second year of an office building's life using the straight-line method. To do this, you would first calculate the building's total depreciable cost by subtracting the expected salvage value from the purchase price. Next, you divide the total depreciable cost by the useful life of the asset to determine the annual depreciation expense.
Calculation:
- Purchase Price of Office Building: $4,500,000
- Estimated Salvage Value: $500,000
- Estimated Useful Life: 40 years
Total Depreciable Cost = Purchase Price - Salvage Value = $4,500,000 - $500,000 = $4,000,000
Annual Depreciation Expense = Total Depreciable Cost / Useful Life = $4,000,000 / 40 years = $100,000
The depreciation expense for the second year, and for every year of the asset's useful life using the straight-line method, would be $100,000.