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, 2014 and it has a useful life of 40 years. The price of the building included land improvements costing ₤600,000 and personal property costing ₤750,000. The useful lives of the land improvements and the personal property 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, 2014?
A) ₤335,000
B) ₤200,000
C) ₤426,250
D) ₤376,250

Question

Quizplus · Accepted Answer

The building's depreciation is ₤6,650,000/40 = ₤166,250. Land improvements depreciation is ₤600,000/10 = ₤60,000. Personal property depreciation is ₤750,000/5 = ₤150,000. Total depreciation is ₤166,250 + ₤60,000 + ₤150,000 = ₤376,250.

Salem Company Hired Kirk Construction to Construct an Office Building