A 20-year-old building has an estimated economic life of 50 years and a replacement cost of $800,000. Using straight-line depreciation, what is the depreciated value of the improvements?
Correct Answer
A) $480,000
Using straight-line depreciation: Annual depreciation = $800,000 ÷ 50 years = $16,000. Total depreciation after 20 years = $16,000 × 20 = $320,000. Depreciated value = $800,000 - $320,000 = $480,000.
Why This Is the Correct Answer
Option A is correct because straight-line depreciation calculates annual depreciation as replacement cost divided by economic life ($800,000 ÷ 50 = $16,000 per year). After 20 years, total depreciation is $320,000 ($16,000 × 20). The depreciated value equals replacement cost minus accumulated depreciation: $800,000 - $320,000 = $480,000.
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