Capital Expenditures, Depreciation, and Disposal Wagner Company purchased a retail shopping center on January 1, 2007, at a cost of $612,000.

Wagner estimated that the life of the building would be 25 years and the residual value at the end of 25 years would be $12,000.

On January 1, 2008, the company made several expenditures related to the building. The entire building was painted and floors were refinished at a cost of $115,200. A local zoning agency required Wagner to install additional fire protection equipment, including sprinklers and built-in alarms, at a cost of $87,600. With the new protection, Wagner believed it was possible to increase the residual value of the building to $30,000.

In 2009, Wagner altered its corporate strategy dramatically. The company sold the retail shopping center on January 1, 2009, for $360,000 cash.

Required 1. Determine the amount of depreciation that should be reflected on the income statement for 2007 and 2008.
2. Explain why the cost of the fire protection equipment was not expensed in 2008. What conditions would have allowed Wagner to expense it? If Wagner has a choice, would it prefer to expense or capitalize the equipment?
3. What amount of gain or loss did Wagner record when it sold the building? What amount of gain or loss would have been reported if the fire protection equipment had been expensed in 2008?