Masterson Supply purchased a small storage building for $20,000 to be used over a five-year period. The building has no residual value. Early in the fourth year, the storage building burned down. Record the retirement of the remaining book value of the storage building.

Debit: Accumulated Depreciation = $12,000

Debit: Loss on storage building = $8000

Credit: Storage building = $20,000

Explanation:

Assuming that a straight-line depreciation method is used ...

Straight-line depreciation is when the same amount is depreciation every year for the life of the asset. It is calculated as:

(Cost of asset - residual value) / number of useful life

Depreciation per year = (20,000 - 0) / 5 = $4000

For 3 years, the asset would have depreciated a total of 3 x $4000 = $12,000

Its net book value as the time of fire being $20,000 - $12,000 = $8,000

The building being burned down is a loss on storage building. Hence, the asset and its accumulated depreciation would have to be written-off the books and recorded as a loss incurred ...

Recording entries:

Debit: Accumulated Depreciation = $12,000

Debit: Loss on storage building = $8000

Credit: Storage building = $20,000