Question

On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The allocation of the total purchase price of $930,000 to the various types of assets along with estimated useful lives and residual values are as follows:

Asset	Cost				Estimated Residual Value				Estimated Useful Life in Years
Land	$	135,000				N/A			N/A
Building		430,000				none			20
Machinery		230,000				12% of cost			10
Equipment		135,000			$	13,000			4
Total	$	930,000

On June 29, 2019, machinery included in the March 31, 2018, purchase that cost $93,000 was sold for $73,000. Herzog uses the straight-line depreciation method for buildings and machinery and the sum-of-the-years'-digits method for equipment. Partial-year depreciation is calculated based on the number of months an asset is in service.

Required:

1. Compute depreciation expense on the building, machinery, and equipment for 2018.
2. Prepare the journal entries to record the depreciation on the machinery sold on June 29, 2019, and the sale of machinery.
3. Compute depreciation expense on the building, remaining machinery, and equipment for 2019.

Answer 1

Compute the depreciation expenses on building, machinery, and equipment for 2018 as follows: Cost of assets - Residual value Months used Depreciation on building = Estimated useful life of asset $430,000-$ 09 20 years 12 = $16.125 Cost of assets - Residual value Months used Depreciation on machinery =- Estimated useful life of asset $230,000 -($230,000 x 12%) 9 10 years = $18.630 9 Depreciation on equipment = Depreciation base = Estimated useful life in years Sum-of-year-digits 4 9 =($135,000 - $13,000) x-x 10 12 = $36.600 Pass the journal entry as follows: Date Account title and explanations June-29-2019 Depreciation expense Accumulated depreciation expense Debit ($) Credit (S) $4,0921 $4,092 June-29-2019 Cash Accumulated depreciation Machinery (S4.092+$6.138) Loss on sale Machinery $73,000 $10.230 $9,770 $93,000

Working note: Cost of assets - Residual value Months used Depreciation on machinery sold for 2018 => Estimated useful life of asset $93,000 -(12% x $93,000) 9 10 12 = $6,138 Cost of assets - Residual value Months used Depreciation on machinery sold for 2019 = Estimated useful life of asset $93,000 -12% x $93,000). 6 10 * 12 = $4,092 Compute the depreciation expenses on building, machinery, and equipment for 2019 as follows: Cost of assets - Residual value Months used Depreciation on building = Estimated useful life of asset 12 $430,000 - SO 12 20 years 12 = $21.500 Cost of assets - Residual value Months used Depreciation on machinery = Estimated useful life of asset 12 ($230,000 - $93.000)-T($230,000 - $93,000)x12% 10 years = $12,056 12 3 Estimated useful life in years Depreciation on equipment = Depreciation base = Sum-of-year-digits Depreciation basex Estimated useful life in years Sum-of-year-digits 4 3 9 ={(S135,000 – $13,000) x +(9135,000-$13.000) X = $48.800