[Anonymous]

Becker Question –

On January 1, 1989, Bay Co. acquired a land lease for a 21-year period with no option to renew. The lease required Bay to construct a building in lieu of rent. The building, completed on January 1, 1990, at a cost of $840,000, will be depreciated using the straight-line method. At the end of the lease, the building’s estimated market value will be $420,000. What is the building’s carrying amount in Bay’s December 31, 1990, balance sheet?

Correct Answer: 798,000

my question: the calculation for the correct answer does not include the salvage value of the building ($420,000) at the end of the lease, why?

[livealittle]

I'm going to guess that the building's estimated market value at end of lease is not the same thing as a building's salvage value? Therefore it isn't deducted from the basis for depreciation?

I don't really know, just guessing. if you click on the book icon, what does it say?

BEC - 8/8/16
REG - 66, 77
AUD - 81
FAR - 9/8/16

[Spartans92]

Im with livealittle, it says lease term not useful life. Therefore, the market value doesn't mean its the salvage value because we dont know whether the building has fully depreciated.

BEC- PASS

[Author]

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