Capital Expenditures, Depreciation, and Disposal

Wagner Company purchased a retail shopping center on January 1, 2016, at a cost of $612,000. Wagner estimated that its life would be 25 years and its residual value would be $12,000.

On January 1, 2017, 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 2018, Wagner altered its corporate strategy dramatically. The company sold the retail shopping center on January 1, 2018, for $360,000 cash.

Required:

1. Determine the depreciation that should be on the income statement for 2016 and 2017.

2. Which of the following statements best describes the accounting treatment for the cost of the fire equipment?

1-Since the cost of the fire equipment increased the value of the asset and it will last for more than one year, the cost should be capitalized. This would better match revenues with the costs incurred to generate the revenues.

2-Since the cost of the fire equipment increased the value of the asset and it will last for more than one year, the cost should be expensed. There is no need to match the expense to revenues because they don't know if this will impact revenues.

3-Since the cost of the fire equipment was less than $100,000, the cost should be capitalized.

4-Since the cost of the fire equipment could be considered maintenance, and they know exactly when they will sell it, the cost should be expensed.

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 2017?