Question
In: Accounting
On March 31, 2021, the Herzog Company purchased a factory complete with vehicles and equipment. The...
On March 31, 2021, the Herzog Company purchased a factory complete with vehicles and equipment. The allocation of the total purchase price of $1,000,000 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 | $ 100,000 | N/A | N/A |
| Building | 500,000 | none | 25 |
| Equipment | 240,000 | 10% of cost | 8 |
| Vehicles | 160,000 | $12,000 | 8 |
| Total | $1,000,000 |
On June 29, 2022, equipment included in the March 31, 2021, purchase that cost $100,000 was sold for $80,000. Herzog uses the straight-line depreciation method for buildings and equipment and the double-declining-balance method for vehicles. Partial-year depreciation is calculated based on the number of months an asset is in service.
Required:
-
Compute depreciation expense on the building, equipment, and vehicles for 2021.
-
Prepare the journal entries for 2022 to record (a) depreciation on the equipment sold on June 29, 2022, and (b) the sale of the equipment. Round to the nearest whole dollar amount.
-
Compute depreciation expense on the building, remaining equipment, and vehicles for 2022.
Solutions
Expert Solution
1.Assumption, year closes on 31st december every year
| Asset | Purchase value | Residual Value | Depreciable value | Total life | Depreciation for 2021 |
| Building | 500000 | 0 | 500000 | 25 | (500000/25)*9/12=15000 |
| Equipment | 240000 | 24000 | 216000 | 8 | (216000/8)*9/12=20250 |
| vehicle | 160000 | 12000 | 148000 | 8 | 2*(148000/8)*9/12=27750 |
| Total | 900000 | 36000 | 864000 | 63000 |
*Assets used only for 9 months
2. equipment used for only 6 months in 2022
Journal entry on 29th june will be
Depreciation a/c dr 5625
To Equipment a/c 5625
(Being depreciation charged for 6 months (90000/8)*6/12=5625)
Cash a/c dr 80000
Loss on sale of equipment a/c dr 5937
To equipment a/c 85937
(being equipment sold at 80000 and loss calculated 100000-80000-(90000/8)*9/12-(90000/8)*6/12)
3. Depreciation for year 2022
| Asset | Purchase value | less depreciation for 2021 | Asset sold | closing value after sale | Depreciation for 2021 |
| Building | 500000 | 15000 | 0 | 485000 | (500000/25)=20000 |
| Equipment | 240000 | 20250 | 91562 | 128188 | (126000/8)=15750 |
| vehicle | 160000 | 27750 | 0 | 132250 | 2*(148000/8)=37000 |
| Total | 900000 | 36000 | 91562 | 745438 | 72750 |
ekkarill92 answered 1 year agoRelated Solutions
On March 31, 2021, the Herzog Company purchased a factory complete with vehicles and equipment. The...
On March 31, 2021, the Herzog Company purchased a factory
complete with vehicles and equipment. The allocation of the total
purchase price of $960,000 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 $ 120,000 N/A N/A Building 460,000 none 25 Equipment
260,000 10% of cost 6 Vehicles 120,000 $ 15,000 10 Total $ 960,000
On June 29, 2022, equipment included...
On March 31, 2021, the Herzog Company purchased a factory complete with vehicles and equipment. The...
On March 31, 2021, the
Herzog Company purchased a factory complete with vehicles and
equipment. The allocation of the total purchase price of $950,000
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
$
125,000
N/A
N/A
Building
450,000
none
20
Equipment
250,000
12%
of cost
10
Vehicles
125,000
$
13,000
10
Total
$
950,000
On June 29, 2022, equipment included...
Chapter 11, #2 On March 31, 2021, the Herzog Company purchased a factory complete with vehicles...
Chapter 11, #2
On March 31, 2021, the Herzog Company purchased a factory
complete with vehicles and equipment. The allocation of the total
purchase price of $990,000 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
$
105,000
N/A
N/A
Building
490,000
none
20
Equipment
290,000
12% of cost
10
Vehicles
105,000
$
13,000
10
Total
$
990,000
On June 29,...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
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...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,090,000 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
$
145,000
N/A
N/A
Building
590,000
none
20
Machinery
150,000
12% of cost
8
Equipment
205,000
$
16,000
6
Total
$
1,090,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,050,000 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
$
125,000
N/A
N/A
Building
550,000
none
20
Machinery
190,000
12% of cost
8
Equipment
185,000
$
13,000
4
Total
$
1,050,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $950,000 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
$
125,000
N/A
N/A
Building
450,000
none
20
Machinery
250,000
12% of cost
10
Equipment
125,000
$
13,000
4
Total
$
950,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,050,000 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
$
125,000
N/A
N/A
Building
550,000
none
20
Machinery
190,000
12% of cost
8
Equipment
185,000
$
13,000
4
Total
$
1,050,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,040,000 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
$
120,000
N/A
N/A
Building
540,000
none
25
Machinery
200,000
10% of cost
6
Equipment
180,000
$
15,000
5
Total
$
1,040,000
On June 29, 2019, machinery included...
On March 31, 2021, Canseco Plumbing Fixtures purchased equipment for $38,000. Residual value at the end...
On March 31, 2021, Canseco Plumbing Fixtures purchased equipment
for $38,000. Residual value at the end of an estimated four-year
service life is expected to be $2,000. The company expects the
equipment to operate for 10,000 hours. The equipment operated for
2,600 and 3,400 hours in 2021 and 2022, respectively.
Required:
a. Calculate depreciation expense for 2021 and
2022 using straight line method.
b. Calculate depreciation expense for 2021 and
2022 using double-declining balance method.
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