Question: A recent annual report for Swifty Air Cargo Company states

A recent annual report for Swifty Air Cargo Company states the following:
Property, Plant, and Equipment
Expenditures for major additions, improvements, flight equipment modifications, and specific equipment overhaul costs are capitalized when such costs are determined to extend the useful life of the asset or are part of acquiring the asset. Maintenance and repairs are charged to expense as incurred.
Assume that Swifty made extensive repairs on an existing building and added a new section. The building is a garage and repair facility for delivery trucks that serve the local area. The existing building originally cost $ 820,000, and by the end of 2013, it was half depreciated on the basis of a useful life of 20 years and no residual value. Assume straight- line depreciation was used. During 2014, the following expenditures related to the building were made:
a. Ordinary repairs and maintenance expenditures for the year, $ 17,000 paid in cash.
b. Extensive and major repairs to the roof of the building, $ 120,000 paid in cash. These repairs were completed on December 31, 2014.
c. The new section, completed on December 31, 2014, at a cost of $ 230,000 paid in cash, has an estimated useful life of nine years and no residual value.
1. Applying the policies of Swifty, complete the following schedule, indicating the effects of the preceding expenditures. If there is no effect on an account, write N on the line (amounts in thousands):
2. What was the carrying amount of the building at December 31, 2014?
3. Compute the depreciation expense for 2015, assuming no additional capital expenditures on this building in 2015.
4. Explain the effect of depreciation on cash flows.

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  • CreatedAugust 04, 2015
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