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Question 9 of 14

Victor Mineli, the new controller of Santorini Company, has reviewed the expected depreciable assets at the beginning of 2022. Here are his findings:

[tex]\[
\begin{array}{|c|c|c|c|c|}
\hline
\text{Type of Asset} & \text{Date Acquired} & \text{Cost} & \text{Accumulated Depreciation, Jan. 1, 2022} & \text{Useful Life (in years)} \\
\hline
Building & \text{Jan. 1, 2014} & \$700,000 & \$130,000 & 40 \\
\hline
Warehouse & \text{Jan. 1, 2017} & \$120,000 & \$23,000 & 25 \\
\hline
\end{array}
\][/tex]

All assets are depreciated by the straight-line method. Santorini Company uses a calendar year for financial statements. After discussion, management has agreed to accept Victor's proposed changes in the remaining life.

Compute the revised annual depreciation on each asset in 2022. (Round answers to the nearest dollar.)

Revised annual depreciation:
- Building: [tex]$\$[/tex]
- Warehouse: [tex]$\$[/tex]



Answer :

GinnyAnswer
To determine the revised annual depreciation for each asset in 2022, we'll follow a structured approach. We'll need to calculate the remaining useful life of each asset, the book value at the beginning of 2022, and then use the straight-line depreciation method to find the revised annual depreciation. Let's go through the process step-by-step.

### Step 1: Extract and Understand the Given Information
For each asset (Building and Warehouse), we have the following details:

Building:
- Date Acquired: January 1, 2014
- Cost: [tex]$700,000 - Accumulated Depreciation as of January 1, 2022: $[/tex]130,000
- Original Useful Life: 40 years

Warehouse:
- Date Acquired: January 1, 2017
- Cost: [tex]$120,000 - Accumulated Depreciation as of January 1, 2022: $[/tex]23,000
- Original Useful Life: 25 years

### Step 2: Calculate the Remaining Useful Life
Calculate the years elapsed for each asset up to January 1, 2022, and then find the remaining useful life.

Building:
- Years Elapsed (2022 - 2014) = 8 years
- Original Useful Life = 40 years
- Remaining Useful Life = 40 - 8 = 32 years

Warehouse:
- Years Elapsed (2022 - 2017) = 5 years
- Original Useful Life = 25 years
- Remaining Useful Life = 25 - 5 = 20 years

### Step 3: Compute the Book Value as of January 1, 2022
Subtract the accumulated depreciation from the cost of each asset to get the book value.

Building:
- Cost = [tex]$700,000 - Accumulated Depreciation = $[/tex]130,000
- Book Value = [tex]$700,000 - $[/tex]130,000 = [tex]$570,000 Warehouse: - Cost = $[/tex]120,000
- Accumulated Depreciation = [tex]$23,000 - Book Value = $[/tex]120,000 - [tex]$23,000 = $[/tex]97,000

### Step 4: Calculate the Revised Annual Depreciation
Using the straight-line method, divide the book value by the remaining useful life to get the annual depreciation amount.

Building:
- Book Value = [tex]$570,000 - Remaining Useful Life = 32 years - Revised Annual Depreciation = $[/tex]570,000 / 32 ≈ [tex]$17,812.5 Warehouse: - Book Value = $[/tex]97,000
- Remaining Useful Life = 20 years
- Revised Annual Depreciation = [tex]$97,000 / 20 = $[/tex]4,850.0

### Final Answer:
The revised annual depreciation on each asset in 2022 is as follows:

- Building: \[tex]$17,812.5 - Warehouse: \$[/tex]4,850.0