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Answer :
To determine the book value that should appear on the balance sheet for the tow truck and the building after the repairs and improvements have been made, we need to understand how each of these expenses affects the asset values.
Tow Truck:
- Repair Cost: $860
- Book Value Before Repair: $4,760
Repairs are generally considered maintenance expenses that help ensure the asset continues to perform as intended without extending its useful life or improving its value beyond the original condition. Therefore, the repair cost of $860 for the tow truck is expensed and does not affect the book value of the tow truck.
New Book Value for Tow Truck:
[tex]\text{Book Value} = \text{Previous Book Value} = \$4,760[/tex]
Building:
- Cost of New Roof: $9,000
- Building Account Before Replacement: $92,600
- Accumulated Depreciation Before Replacement: $40,900
The cost of replacing the roof is considered a capital expenditure since it extends the building's life by 5 years. Capital expenditures should be added to the asset's value.
Update the Building Account: Add the cost of the new roof to the Building account.
[tex]\text{Original Value of Building Account} = \$92,600[/tex]
[tex]\text{Added Roof Cost} = \$9,000[/tex]
[tex]\text{New Building Account Value} = \$92,600 + \$9,000 = \$101,600[/tex]
Accumulated Depreciation: Remains unchanged immediately after the roof replacement because depreciation will occur over time. Hence, the accumulated depreciation remains at $40,900 immediately after the replacement.
Calculate the New Book Value of the Building:
[tex]\text{New Book Value of Building} = \text{Building Account} - \text{Accumulated Depreciation}[/tex]
[tex]\text{New Book Value} = \$101,600 - \$40,900 = \$60,700[/tex]
Summary:
- Tow Truck Book Value: Remains the same at $4,760.
- Building Book Value: Adjusted to $60,700 after the roof replacement.
These values will be reflected in the company's balance sheet for both the tow truck and the building asset.
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Rewritten by : Jeany
