Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was$45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the asset’s life, and create the journal entry for year eleven.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 15PB
Textbook Problem
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Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was$45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the asset’s life, and create the journal entry for year eleven.

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:

The depreciation expense before and after the revision of economic life of the asset. Also, prepare journal entry for the eleventh year.

Explanation of Solution

Computation of depreciation expense for the first ten years:

Depreciation expense can be computed by using the following formula

Depreciation Expense=Cost of AssetSalvage ValueEconomic Life of the Asset

Substitute $500,000 for the cost of asset,$45,000 for salvage value, and 40 Years for the economic life of the asset, in the above formula.

Depreciation Expense=$500,000$45,00040 Years=$455,00040 Years=$11,375

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

 Particulars Amount (\$) Original cost 500,000 Less: Depreciation char

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