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.