   # Colquhoun International purchases a warehouse for $300,000. The best estimate of the salvage value at the time of purchase was$15,000, and it is expected to be used for twenty-five years. Colquhoun uses the straight-line depreciation method for all warehouse buildings. After four years of recording depreciation, Colquhoun determines that the warehouse will be useful for only another fifteen years. Calculate annual depreciation expense for the first four years. Determine the depreciation expense for the final fifteen years of the asset’s life, and create the journal entry for year five. FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

#### Solutions

Chapter
Section FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 13PA
Textbook Problem
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## Colquhoun International purchases a warehouse for $300,000. The best estimate of the salvage value at the time of purchase was$15,000, and it is expected to be used for twenty-five years. Colquhoun uses the straight-line depreciation method for all warehouse buildings. After four years of recording depreciation, Colquhoun determines that the warehouse will be useful for only another fifteen years. Calculate annual depreciation expense for the first four years. Determine the depreciation expense for the final fifteen years of the asset’s life, and create the journal entry for year five.

To determine

Introduction:

Depreciation is reduction in the value of fixed assets due to its regular use. Depreciation is charged to income statement as an expense.

To compute:

Thedepreciation expense beofre and after the revision of the salavage value and economic life of the asset. Also prepare journal entry for the fifth year.

### Explanation of Solution

Computation of depreciation expense for the first four years:

Depreciation expense can be computed by using the following formula,

Depreciation Expense=Cost of AssetSalvage ValueEconomic Life of the Asset

Substitute $300,000 for the cost of asset,$15,000 for salvage value, and 25 Years for the economic life of the asset, in the above formula.

Depreciation Expense=$300,000$15,00025 Years=$285,00025 Years=$11,400

Computation of depreciation expense after revision to be charged in the final fifteen years of the asset’s life:

 Particulars Amount (\$) Original cost 300,000 Less:

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