Reference no: EM133059980

Question - On January 1, 2021, The Burgundy Winery purchased a new vineyard. The vineyard purchase consisted of a building, a bottling machine, cellar equipment, and land. The total purchase price was $5,250,000. The fair market value of each asset is as follows: the building, $1,800,000; the bottling machine, $1,200,000; the cellar equipment, $600,000; and the land, $2,400,000.

The building has a 10 year-life and a salvage value of $100,000. It is depreciated using the straight-line method.

The bottling machine system is depreciated using the units of output method and is anticipated to have a total output of 600,000 bottles over its useful life. There will be no salvage value at the end of the useful life.

The cellar equipment will be depreciated using the double-declining balance method. The cellar equipment has a useful life of 8 years and a $25,000 salvage value.

(a) Determine the capitalized cost of each asset using the lump-sum purchase method.

(b) Assuming use of the straight-line depreciation method, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year for the building.

(c) Assuming use of the units-of-output depreciation method, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year for the bottling machine. Actual output, in bottles, was 100,000 (2021), 130,000 (2022), 150,000 (2023), 160,000 (2024), and 120,000 (2025).

(d) Assuming use of the double-declining balance depreciation method, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year for the cellar equipment.

(e) Assuming use of the straight-line method, prepare revised depreciation calculations for the building if the useful life estimate was revised at the beginning of 2027, to anticipate a remaining useful life of 4 additional years (in other words, a total life of 14 years). The revised useful life was accompanied by a change in estimated salvage value to $40,000.