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Bil's Wrecker Service has just completed a minor repair on a tow truck. The repair cost was $990, and the book value prior to the repair was $4,540.

In addition, the company spent $7,000 to replace the roof on a building. The new roof extended the life of the building by five years. Prior to the roof replacement, the general ledger reflected the Building account at $90,600 and the related Accumulated Depreciation account at $35,500.

**Required:**

After the work was completed, what book value should appear on the balance sheet for the tow truck and the building?

Answer :

After the repair on the tow truck, the book value should reflect the repair cost added to the previous book value. The repair cost of $990 is added to the previous book value of $4,540. Therefore, the new book value for the tow truck should be $5,530.

The accumulated depreciation is $35,500, and the previous book value is the building's original cost minus accumulated depreciation. Thus, the original cost of the building is $90,600 + $35,500 = $126,100.

Next, we need to subtract the accumulated depreciation from the original cost to determine the remaining book value prior to the roof replacement. The remaining book value is $126,100 - $35,500 = $90,600.

Since the new roof extended the building's life by five years, we need to recalculate the depreciation expense for the remaining useful life. Let's assume the building has a straight-line depreciation method, which means the annual depreciation expense is calculated by dividing the remaining book value by the remaining useful life.

The remaining useful life after the roof replacement is 5 years, and the remaining book value is $90,600. Therefore, the new annual depreciation expense will be $90,600 / 5 = $18,120 per year.

Finally, to calculate the new book value of the building, we subtract the cumulative depreciation expense for the remaining useful life from the original cost. The cumulative depreciation expense is $18,120 * 5 = $90,600.

Hence, the new book value for the building after the roof replacement should be $126,100 - $90,600 = $35,500.

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