Presented Below Are the Components Related to an Office Building

question 153

Essay

Presented below are the components related to an office building that Lorny Manufacturing Company purchased for $10,000,000 on January, 1, 2018.
$\begin{array}{lcr}\text { Component } & \text { Useful Life } &\text { Value } \\\hline \text { Building structure } & 50 \text { years } & \$ 6,400,000 \\\text { Building systems } & \text { 25 years } & 2,800,000 \\\text { Building interior } & 25 \text { years } & 800,000\end{array}$
a. Compute depreciation expense for 2018, assuming that Lorny uses component depreciation, uses the straight-line method of depreciation, and ignores scrap values.
b. Assume that the building systems (heating, plumbing, electrical) were replaced after 20 years at a cost of $2,500,000. The company paid cash. Prepare the journal entry to record the replacement of the old component with the new component.

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Definitions:

Investment Tax Credit

A tax credit offered by the government to encourage businesses to invest in certain assets by allowing them to deduct a portion of the investment cost from their taxes.

Loanable Funds

The market in which savers supply funds to borrowers who want to borrow, influencing interest rates and overall economic activity.

Crowding Out

A situation where increased government spending leads to a reduction in private sector investment or spending.

Government Budget Surpluses

Occurs when a government's revenues exceed its expenditures during a specific time period, allowing for savings or debt repayment.