Masterson Supply purchased a small storage building for $20,000 to be used over a five-year period. The building has no residual value. Early in the fourth year, the storage building burned down. Record the retirement of the remaining book value of the storage building.

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Clare

Business

1 January, 19:19

Masterson Supply purchased a small storage building for $20,000 to be used over a five-year period. The building has no residual value. Early in the fourth year, the storage building burned down. Record the retirement of the remaining book value of the storage building.

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Daria · Answer 1

Debit: Accumulated Depreciation = $12,000

Debit: Loss on storage building = $8000

Credit: Storage building = $20,000

Explanation:

Assuming that a straight-line depreciation method is used ...

Straight-line depreciation is when the same amount is depreciation every year for the life of the asset. It is calculated as:

(Cost of asset - residual value) / number of useful life

Depreciation per year = (20,000 - 0) / 5 = $4000

For 3 years, the asset would have depreciated a total of 3 x $4000 = $12,000

Its net book value as the time of fire being $20,000 - $12,000 = $8,000

The building being burned down is a loss on storage building. Hence, the asset and its accumulated depreciation would have to be written-off the books and recorded as a loss incurred ...

Recording entries:

Debit: Accumulated Depreciation = $12,000

Debit: Loss on storage building = $8000

Credit: Storage building = $20,000