Question

A recent annual report for AMERCO, the holding company for U-Haul International, Inc., included the following note:
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Interest costs incurred during the initial construction of buildings or rental equipment are considered part of cost. Depreciation is computed for financial reporting purposes principally using the straight-line method over the following estimated useful lives: rental equipment 2-20 years; buildings and non-rental equipment 3-55 years. Major overhauls to rental equipment are capitalized and are amortized over the estimated period benefited. Routine maintenance costs are charged to operating expense as they are incurred.
AMERCO subsidiaries own property, plant, and equipment that are utilized in the manufacture, repair, and rental of U-Haul equipment and that provide offices for U-Haul. Assume that AMERCO made extensive repairs on an existing building and added a new wing. The building is a garage and repair facility for rental trucks that serve the Seattle area. The existing building originally cost $230,000, and by the end of 2011 (its fifth year), the building was one-quarter depreciated on the basis of a 20-year estimated useful life and no residual value. Assume straight-line depreciation. During 2012, the following expenditures related to the building were made:
a. Ordinary repairs and maintenance expenditures for the year, $5,000 cash.
b. Extensive and major repairs to the roof of the building, $17,000 cash. These repairs were completed on December 31, 2012.
c. The new wing was completed on December 31, 2012, at a cash cost of $70,000.

Required:
1. Applying the policies of AMERCO, complete the following, indicating the effects for the preceding expenditures. If there is no effect on an account, write NE on the line:


2. What was the book value of the building on December 31, 2012?
3. Explain the effect of depreciation on cashflows.


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  • CreatedJuly 26, 2012
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