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Straright Line depreciation

Problem:
Oren Company's air-conditioning system has just completed the eight year of an estimated ten-year life. The system cost $60,000 and now has accumulated depreciation of $48,000. At the beginning of the ninth year, the company expects to spend $16,000 on a complete renovation of the system and expects the total life of the system to be fifteen years. Neither the capacity of the system nor the residual value has increased. The company uses the straight-line method to determine depreciation. Determine the following: (a) the account debited for the cost of renovation, (b) the carrying value of the system after renovation, and (c) the depreciation expense for the ninth year.

Solution Preview

In the given case, the expenditure increases the life of the asset. If the expenditure extends the life beyond the original estimate it is not charged to the asset account. It only extends life, it does not improve the quality of ...

Solution Summary

The solution explains how to calculate the depreciation amount under straight line method when the life of an asset is increased due to renovation

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