Harrison Rentals purchased an apartment building in 2006. At the time, the building was expected to have a useful life of 25 years with a residual value of $100,000, during which time it was projected to generate annual rentals of $30,000 (adjusted for inflation). The building's original cost was $500,000.
At January 1, 2014 the accumulated depreciation balance on this building was $128,000, and 2014 depreciation has been calculated as $16,000. Harrison has a December 31 year end.
During January 2014, Harrison had the following events and transactions related to the building. All transactions are for cash.
1. Painted all the walls in the common areas at a cost of $8,000.
2. Replaced the electrical wiring in three suites due to safety concerns at a cost of $4,500.
3. Replaced all of the linoleum flooring in the suites with hardwood, installed in-suite laundry facilities in each unit, and made other improvements at total cost of $120,000. As a result, the annual rental revenue has been doubled.
4. Completed structural repairs to the building at a cost of $100,000. As a result of this work the building life is expected to be 10 years longer than the original estimate. The residual value estimate has been revised to $134,000.
Instructions
a. Calculate the carrying amount of the building on December 31, 2014. Provide explanations for any increases to building cost.
b. Record the 2015 depreciation expense using the straight line basis, assuming that the increased rental rates go into effect January 1, 2015.

Question

Quizplus · Accepted Answer

The Answer of Harrison Rentals purchased an apartment building in 2006. At the time, the building was expected to have a useful life of 25 years with a residual value of $100,000, during which time it was projected to generate annual rentals of $30,000 (adjusted for inflation). The building's original cost was $500,000.
At January 1, 2014 the accumulated depreciation balance on this building was $128,000, and 2014 depreciation has been calculated as $16,000. Harrison has a December 31 year end.
During January 2014, Harrison had the following events and transactions related to the building. All transactions are for cash.
1. Painted all the walls in the common areas at a cost of $8,000.
2. Replaced the electrical wiring in three suites due to safety concerns at a cost of $4,500.
3. Replaced all of the linoleum flooring in the suites with hardwood, installed in-suite laundry facilities in each unit, and made other improvements at total cost of $120,000. As a result, the annual rental revenue has been doubled.
4. Completed structural repairs to the building at a cost of $100,000. As a result of this work the building life is expected to be 10 years longer than the original estimate. The residual value estimate has been revised to $134,000.
Instructions
a. Calculate the carrying amount of the building on December 31, 2014. Provide explanations for any increases to building cost.
b. Record the 2015 depreciation expense using the straight line basis, assuming that the increased rental rates go into effect January 1, 2015.

Harrison Rentals Purchased an Apartment Building in 2006