Ramstetter, Inc. purchased a piece of land with a new building on January 1, 20A. The land was valued at $40,000 and the building was valued at $120,000 with a 40 year life and a zero salvage (residual) value. How would the land and building appear in the plant, property and equipment section of the December 31, 20A statement of financial position?

Question

Quizplus · Accepted Answer

The land is not subject to depreciation, so it appears at its original cost of $40,000. The building, on the other hand, has a depreciable cost of $120,000, with an estimated useful life of 40 years and no salvage value. Straight-line depreciation is calculated by dividing the depreciable cost by the estimated useful life, which results in an annual depreciation expense of $3,000. As of December 31, 20A, there would have been 1 year of depreciation, totaling $3,000. Therefore, the building appears on the statement of financial position as $120,000 less accumulated depreciation of $3,000, or $117,000.