Question

Randy rents commercial warehouses to various businesses. If he purchased a warehouse for $250,000 in May of the current year, what will be the depreciation for the current year? If Randy continues to rent the warehouse for the next 40 years, what will be the depreciation in the 40th year he owns the warehouse?

A) Depreciation for the current year: $__
B) Depreciation in the 40th year: $__

Answer 1

Without further information on salvage value or depreciation method, under the straight-line method, Randy would depreciate his warehouse at $6,250 per year for each of the 40 years, including the first and the 40th year.

Step-by-step explanation:

To calculate the depreciation for the current year and the 40th year on a commercial warehouse purchased for $250,000 by Randy, we would need to know the method of depreciation being used. Common methods include straight-line depreciation, declining balance, and sum-of-the-years'-digits, among others.

So, the yearly depreciation would be:

Depreciation per year = Purchase Price / Useful Life = $250,000 / 40 years = $6,250 per year.

A) Depreciation for the current year: $6,250

B) Depreciation in the 40th year: same as any other year, $6,250, because the straight-line method results in the same amount every year.