Salem Company hired Kirk Construction to construct an office building for ₤8,000,000 on land costing ₤2,000,000, which Salem Company owned. The building was complete and ready to be used on January 1, 2017 and it has a useful life of 40 years. The price of the building included land improvements costing ₤600,000 and equipment costing ₤750,000. The useful lives of the land improvements and the equipment are 10 years and 5 years, respectively. Salem Company uses component depreciation, and the company uses straight-line depreciation for other similar assets. What total amount of depreciation expense would Salem Company report on its income statement for the year ended December 31, 2017?
A)₤335,000
B)₤200,000
C)₤426,250
D)₤376,250

Question

Quizplus · Accepted Answer

The total amount of depreciation expense for the year ended December 31, 2017 is ₤376,250. This is calculated as follows:Building: ₤8,000,000 / 40 years = ₤200,000 per yearLand improvements: ₤600,000 / 10 years = ₤60,000 per yearEquipment: ₤750,000 / 5 years = ₤150,000 per yearTotal depreciation expense: ₤200,000 + ₤60,000 + ₤150,000 = ₤376,250

Salem Company Hired Kirk Construction to Construct an Office Building