Depreciation Methods Weiskoff and Associates recently completed construction of a new office building in downtown Eastwik. The land on which the building was constructed was purchased for $120,000, and $15,000 was spent to have an existing building removed. Legal fees were

$22,000 for the transfer of title to the land. Architect fees on the new building were $80,000. Payment of $620,000 was made to the contractor upon completion of the building. A parking lot was built on the property at a cost of $70,000.

Sidewalks, lighting, and landscaping cost a total of $35,000. A fence around the parking lot was added at a cost of $15,000.

The building has an estimated useful life of 40 years, and land improvements are expected to be of benefit for 8 years.

a. Determine the amounts that should be reported as the cost of (1) land, (2) buildings, and (3) land improvements.

b. The company has decided to use straight-line depreciation for financial reporting purposes and double-declining-balance depreciation for tax purposes. Compute the depreciation both for financial reporting and tax reporting for the second year of ownership.

c. Assuming a 40 percent federal income tax rate, what amount of cash did the company save in tax payments during the second year by using double-declining-balance depreciation for tax purposes?

d. Weiskoff and Associates received an offer from an investor at the end of the second year of ownership who was willing to pay $935,000 for the property. What amount of gain or loss would be recorded on the sale? What factors should Weiskoff consider before selling?