The $900,000 paid to the construction manager and $100,000 paid to the architect are capitalized as part of the building's total cost, totaling $1,000,000.
Using straight-line depreciation over 50 years with the half-year convention:
Annual depreciation = $1,000,000 ÷ 50 = $20,000
Since the half-year convention is used in the year the asset is placed in service, only 50% of the full-year depreciation is recorded.
Depreciation for the current year = $20,000 × 0.5 = $10,000
However, note: since both amounts ($900,000 + $100,000) were paid during construction and the school was completed and placed into service this year, the full capitalized amount applies.
GASB and GAAP allow the half-year rule unless the asset was placed into service at the beginning of the year. In this case, since placed during the year, the half-year rule applies.
Correct depreciation for the first year = $10,000
So, the correct answer is:
Answer: B. $10,000
Correction Note: While option C ($20,000) may seem valid for full-year depreciation, the use of the "half-year depreciation method" dictates that only half of the full-year amount is expensed in the first year.
Relevant References:
GASB Statement No. 34 – Capital Assets and Depreciation
GFOA Best Practices on Capital Asset Accounting and Reporting
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