In 1990 Sage Company completed the construction of a buildin

In 1990, Sage Company completed the construction of a building at a cost of $2,360,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $70,800 at the end of that time.

Early in 2001, an addition to the building was constructed at a cost of $590,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $23,600.

In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

Account Titles and Explanation

Debit

Credit

In 1990, Sage Company completed the construction of a building at a cost of $2,360,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $70,800 at the end of that time. Early in 2001, an addition to the building was constructed at a cost of $590,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $23,600. In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

Solution

Annual dep from 1991 to 2000:

$2360000-$70800/40=$57320

From 2001 to 2018

$2360000-$70800/30=$76306.6

On Addition of building: $590000-$23600/30=$18880

Annual dep=$76306.6+$18880=$95186.6

In 2019 : No accounting entry as we have made change in estimate.

Total cost: $2360000+$590000=$2950000

Less: salvage value: $70800+$23600=$94400

Less: Depreciation already charged for 18 yrs=$95186.6×18=$1713358.8

Remaining value: $1142241.2

RemaiNing life: 20yrs

Annual Dep from 2019: $57112.06

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