Question

Gracious Hospital purchased the following plant assets on January 1, 20X1:

Estimated   Cost                 Salvage Value                                   Useful Life (Years)

Land      $ 100,000

Buildings 8,000,000

                             $1,600,000                                            40

Equipment 4,500,000              500,000                                             20

Required: (1) Assuming straight-line depreciation, what is the depreciation expense for 20X4? (2) At what amount, net of accumulated depreciation, would these assets be presented in the balance sheet of the hospital at December 31, 20X6?

Answer 1

(1) Calculations for The Depreciation Expense for 20X4 using Straight Line Depreciation:-

Straight Line Depreciation Method=(Cost of Assets - Salvage Value)/ Estimated Useful Life.

No Depreciation Expense Calculated for Land.

Buildings=($8,000,000-$1,600,000)/40 years

=($6,400,000/40)

=$160,000 annual Depreciation Expense for 20X4 for Buildings.

Equipment=($4,500,000-$500,000)/20 years

=($4,000,000/20)

=$200,000 Annual Depreciation Expense for 20X4 for Equipment.

(b) Calculations for net amount of Accumulated Depreciation presented in the Balance Sheet:-

Accumulated Depreciation for Buildings for 6 years (January 1,20X1 to December 31,20X6):-

Accumulated Depreciation, Buildings=(Annual Depreciation Expense × 6 years)

=($160,000 × 6 years)

=$960,000

So the Accumulated Depreciation on Buildings as on December 31,20X6 is $960,000.

Accumulated Depreciation for Equipment for 6 years (January 1,20X1 to December 31,20X6):-

Accumulated Depreciation for Equipment=(Annual Depreciation Expense × 6 years)

=($200,000×6)

=$1,200,000

So the Accumulated Depreciation on Equipment as on December 31,20X6 is $1,200,000.

Gracious Hospital

Balance Sheet (Partial)

December 31,20X6

Accounts	Amount	Amount
Assets:-
Land		$100,000
Buildings	$8,000,000
Less:- Accumulated Depreciation, Buildings	($960,000)
Buildings, net		$7,040,000
Equipment	$4,500,000
Less:- Accumulated Depreciation, Equipment	($1,200,000)
Equipment, net		$3,300,000