Question

XYZ, Inc. purchased an office building on October 1, 2020, that was put on the books at $800,000. The building is expected to be used for 35 years and at the end of the 35 years will be sold for an estimated selling price of $100,000. XYZ closes its books at the end of every calendar year. XYZ, Inc. uses the straight-line method of depreciation. Based on this information, which of the following is correct?

a. Depreciation Expense at 12/31/20 is $20,000.
b. Accumulated Depreciation at 12/31/20 is $20,000
c. Depreciation Expense at 12/31/2021 is $5,000
d. Accumulated Depreciation at 12/31/21 is $25,000

Answer 1

d. Accumulated Depreciation at 12/31/21 is $25,000

Step-by-step explanation:

Depreciable amount = $800,000 - $100,000 = $700,000

Annual depreciation expenses = $700,000 / 35 = $20,000

Depreciation expenses for 2020 (3 months i.e. Oct. 1 - Dec. 31) = $20,000 * (3 / 12) = $5,000.

Accumulated depreciation at 12/31/21 = Depreciation for 2020 + 2021 annual depreciation expenses = $5,000 + $20,000 + $25,000.