Building Improvement Expenses Calculation

Which of the costs incurred by Gonzo Co. should be capitalized to the building account?

1. Repainted the building - $48,000 2. Major improvement to the plumbing - $109,000 3. Replaced carpet in the plant's accounting offices - $47,600 4. Added a 7,000 square foot lobby - $234,600 5. Repaired a broken water main - $155,800

What is the subsequent carrying amount of the building?

Answer:

1. The cost to be capitalized to the building account is $343,600

2. The subsequent carrying amount of the building is $873,600

Let's break down the answers to the questions related to Gonzo Co.'s building improvement expenses:

Capitalization of Costs

To determine which costs should be capitalized to the building account, we need to consider expenses that improve the building's future benefits or extend its useful life. In this case, the major improvement to the plumbing and the addition of a lobby directly enhance the building's value and should be capitalized.

The total cost to be capitalized is calculated by adding the costs of the major improvement to the plumbing and the lobby addition:

Cost to be capitalized = Major improvement to the plumbing + Added a lobby

Cost to be capitalized = $109,000 + $234,600 = $343,600

Subsequent Carrying Amount

The subsequent carrying amount of the building is the historical cost of the building plus any improvements made, minus the accumulated depreciation. This gives us the net carrying value of the building after accounting for the additional expenses:

Subsequent carrying amount = Historical cost + Improvements - Accumulated Depreciation

Subsequent carrying amount = $970,000 + $343,600 - $440,000 = $873,600

Therefore, the subsequent carrying amount of the building is $873,600.