Capital Expenditures, Depreciation, and Disposal Merton Company purchased a building on January 1, 2015, at a cost of $361,000. Merton estimated that is life would be 25 years and its residual value would be $9,000. On January 1, 2016, the company made several expenditures related to the building. The entire building was painted and floors were refinished at a cost of $21,000. A federal agency required Merton to install additional polution control devices in the building at a cost of $48,000. With the new devices, Meton believed it was possible to extend the life of the building by six years. In 2017, Merton altered its corporate strategy dramatically. The company sold the building on April 1, 2017 for $399,000 in cash and relocated all operations to another state. Required: 1. Determine the depreciation that should be on the income statement for 2015 and 2016. Indicate the effect on financial statement items by secting for decrease (or regative effect), "+' for increase for positive effect) and "NE" for No Entry for no effect on the financial statement Journal Income Statement Net Balance Sheet Stockholders' Assets = Liabilities + Equity NE NE Debit Credit Expenses Income Date Description Dec 31 Depreciation expanse Accumulated depreciation-building Revenues NE 14,080 14,080 NE NE NE NE NE Fouck Check My WOR Comed Journal Balance Sheet Income Statement Net Stockholders' Equity Credit Revenues Expenses Income Date Description Jan. 1 Repairs expense Cash, payables, etc Debit 21,000 Assets NE Liabilities + NE NE 21,000 NE NE NE NE NE Capital Expenditures, Depreciation, and Disposal Merton Company purchased a building on January 1, 2015, at a cost of $36.000. Merton estimated that its life would be 25 years and its resdual value would be $9.000. On January 1, 2016, the company made several expenditures related to the building. The entire bulding was painted and floors were refinished at a cost of $21,000. A federal agency required Merton to install additional pollution control devices in the building at a cost of $43,000. With the new devices, Merton believed it was possible to extend the life of the building by sx years. In 2017, Merton atered its corporate strategy dramatically. The compary sold the building on April 1, 2017, for $399,000 in cash and relocated all operations to another state. Required: 1. Determine the depreciation that should be on the income statement for 2015 and 2016 Indicate the effect on financial statement items by selecting - for decrease or negative effect), "+" for increase (or positive effect) and "Ne" for No Entry(or no effect on the financal statement. Journal Income Statement Net Debit Credit Balance Sheet Stockholders Assets = Liabilities + Equity NE NE NE NE Expenses Date Description Dec. 31 Depreciation expense Accumulated depreciation-building Income Revenues NE 14,080 14,00 NE NE NE CPK Work Correct Journal Balance Sheet Income Statement Stockholders Net Debit Credit Assets Equity Revenues Expenses Income Date Description Jan. 1 Repairs expense Cash payables, etc = Liabilities + NE 21,000 NE NE 21,000 NE NE NE NE NE 2. Explain why the cost of the pollution control equipment was not expensed in 2016. a. The asset was capitalized because it provided a current year tax advantage. b. Since the pollution control equipment has an unknown life, the asset was capitalized. C. Since the pollution control equipment extended the life of the asset, the asset was capitalized. d. Extending the life of the asset makes no difference on whether to expense or capitalize, so the company chose to capitalize it for lower taxes in the current year. C 3. What amount of gain or loss did Merton record when it sold the building? Do not round intermediate calculations. $ 16,333 x Gain What amount of gain or loss would have been reported if the pollution control equipment had been expensed in 2016? 43,944 X Gain