American Corporation purchased a building for $900,000 at the end of year 2002. The building will be depreciated over 40 years and is estimated to have a $100,000 salvage value. At the end of 2012, when it had a book value of $700,000, it was appraised for $1,100,000. A potential buyer offered $900,000. American rejected the offer. At what amount should the net book value of the building be at the end of 2012.
A) $1,100,000
B) $ 900,000
C) $ 600,000
D) $ 700,000

Question

Quizplus · Accepted Answer

The net book value of the building at the end of 2012 should be the original cost minus accumulated depreciation, which is $900,000 - ($900,000 - $100,000)/40 x 10 = $700,000. The fact that the building was appraised for more than the net book value does not change the amount of accumulated depreciation and therefore does not affect the net book value. Therefore, option D is the correct answer.

American Corporation Purchased a Building for $900,000 at the End