Tristen Company purchased a five-story office building on January 1, 2019, at a cost of $9,400,000. The building has a residual value of $505,000 and a 30-year life. The straight-line depreciation method is used. On June 30, 2021, construction of a sixth floor was completed at a cost of $2,200,000.

Calculate the depreciation on the building and building addition for 2016 and 2017 assuming that the addition did not change the life or residual value of the building.

The depreciation on the building and building addition for 2021 and 2022 are: $336,500 and $376,500 respectively.

Explanation:

The requirement of the question should be to calculate the depreciation on the building and building addition for 2021 and 2022 since there was no information relating to 2016 and 2017 in the question.

Straight-line depreciation is allocating uniform cost of the asset based on the useful life as a result of wear and tear. It is calculated using the formula below:

Depreciation = (Cost - Residual Value) / Use Life

Depreciation = ($9,400,000 - $505,000) / 30 years = $296,500 yearly depreciation charge

For 2019 and 2020, the accumulated depreciation would be $296,500 x 2 years = $593,000. Meanwhile for 6 months of 2021 (January - June), the depreciation expense is $296,500 x 0.5 = $148,250.

Therefore, accumulated depreciation prior to the addition was $741,250 ($593,000 + $148,250).

Addition to the building treatment:

The net book value of the existing building is $9,400,000 - $741,250 = $8,658,750 and the remaining useful life is 27.5 years.

Factoring the addition would give: $8,658,750 + $2,200,000 = $10,858,750

Depreciation = ($10,858,750 - $505,000) / 27.5 years = $376,500 yearly

For the remaining 6 months of 2021, depreciation expense is $376,500 x 0.5 = $188,250. Therefore, total depreciation expense for 2021 is $148,250 + $188,250 = $336,500.

For 2022, $376,500 yearly depreciation expense above applies.