Runnels Doggie Daycare purchased a building and land for a total cash price of $150,000. An independent

Question:

Runnels’ Doggie Daycare purchased a building and land for a total cash price of $150,000. An independent appraiser provides the following market values: building, $59,500; land, $110,500.

1. How much of the purchase price should the company allocate to each of the assets?

2. If the building has a useful life of eight years and an estimated salvage value of $10,500, how much depreciation expense should Runnels record each year using the straight-line method?

3. Using the double-declining balance method, what would the book value of the building be at the end of four years?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...