Textbook Problem

Expenditures After Acquisition

Murray’s Fish Market, a store that specializes in providing fresh fish to the Nashville, Tennessee, area, installed a new refrigeration unit in January 2018 at a cost of $27,500. The refrigeration unit has an expected life of 8 years and a residual value of $500 when installed. As the fish market’s business increased, it became apparent that renovations were necessary so that the capacity of the refrigeration unit could be increased. In January 2020, Murray’s spent $18,785 to install an additional refrigerated display unit (that was connected to the original unit) and replace the refrigeration coils. After this addition and renovation, Murray’s Fish Market estimated that the remaining useful life of the original refrigeration unit was 12 years and that the residual value was now $1,000.

Required:

1. Compute 1 year’s straight-line depreciation expense on the refrigeration unit before the addition and renovations.

2. Assume that 2 full years of straight-line depreciation expense were recorded on the refrigeration unit before the addition and renovations were made. Compute the book value of the refrigeration unit immediately after the renovations were made.

3. Compute 1 year’s straight-line depreciation expense on the renovated refrigeration unit. Round your answer to the nearest dollar.