Question

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 in the March 31, 2021, purchase that cost $95,000 was sold for $75,000. Herzog uses the straight-line depreciation method for building 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:

1. Compute depreciation expense on the building, equipment, and vehicles for 2021.
2. Prepare the journal entries to record the depreciation on the equipment sold on June 29, 2022, and the sale of equipment.
3. Compute depreciation expense on the building, remaining equipment, and vehicles for 2022.

Answer 1

1)	Depreciation = (cost of asset - salvage value) / life ofasset
Asset	Cost	Estimated Residual Value	Estimated Useful Life (in years)	Method	Depreciation for 2021
Building	450,000	0	20	SL	$          16,875.00
Equipment	250,000	30000	10	SL	$          16,500.00
Vehicles	125,000	13,000	10	DL	$          18,750.00
Total
2)
General Journal	Debit	Credit
Cash	$ 75,000.00
Accumulated Depreciation	$ 10,450.00
Loss on sale of asset	$   9,550.00
Equipment		$ 95,000.00
Accumulated Depreciation = $95000 - (12% x 95000)/10  x 12 months x 15 months	$ 10,450.00
3)
Asset	Cost	Estimated Residual Value	Estimated Useful Life (in years)	Method	Depreciation for 2022
Building	450,000	0	20	SL	$          22,500.00
Equipment	155,000	18600	10	SL	$          13,640.00
Vehicles	125,000	13,000	10	DL	$          21,250.00