Question

The snack stop had the following long-term asset balances as of January 1, 2024. The snack stop purchased all the assets at the beginning of 2022. The building is depreciated over a 20-year service life using the double declining balance method and has no residual value. The equipment is depreciated over a 10-year useful life using the straight-line method with an estimated residual value of $10,000. Depreciation and amortization have not been recorded for 2022 and 2023. For the year ended December 31, 2024 (third year), record depreciation expense for buildings and equipment. Land is not depreciated. For the year ended December 31, 2024, record amortization expense for the patent. Calculate the book value for each of the four long-term assets at December 31, 2024?

Answer 1

For the year ended December 31, 2024, the Snack Stop should record a depreciation expense of $12,500 for the building ([$250,000 20 years] x 2) and $24,000 for the equipment ([$250,000 - $10,000] 10 years). Additionally, amortization expense for the patent is $2,000.

Step-by-step explanation:

In the third year (2024), the Snack Stop needs to calculate depreciation for both the building and equipment. For the building, which has a 20-year service life and no residual value, the double declining balance method is applied. The formula for double declining balance depreciation is:

[ ext{Depreciation Expense} = left(frac{2}{text{Useful Life}}right) times text{Book Value at Beginning of Year} ]

Substituting the values, we get:

[ text{Depreciation Expense for Building} = left(frac{2}{20}right) times \text{Book Value of Building at Jan 1, 2024} \]

[ = left(rac{2}{20}right) times $250,000 = $12,500 ]

For the equipment, which has a 10-year useful life and a $10,000 residual value, the straight-line method is used. The formula for straight-line depreciation is:

[ text{Depreciation Expense} = frac{text{Cost - Residual Value}}{text{Useful Life}} ]

Substituting the values, we get:

[ text{Depreciation Expense for Equipment} = frac{$250,000 - $10,000}{10} = $24,000 ]

Additionally, the patent is amortized over its useful life. The amortization expense is simply the cost of the patent divided by its useful life:

[ text{Amortization Expense for Patent} = frac{$20,000}{10} = $2,000 ]

Finally, to find the book value at December 31, 2024, subtract the accumulated depreciation or amortization from the initial cost. For land, as it does not depreciate, its book value remains unchanged.