Question

On March 31, 2021, the Herzog Company purchased a factory complete with vehicles 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
Equipment		200,000				10% of cost			6
Vehicles		180,000			$	15,000			10
Total	$	1,040,000

On June 29, 2022, equipment included in the March 31, 2021, purchase that cost $104,000 was sold for $84,000. 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.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Compute depreciation expense on the building, remaining equipment, and vehicles for 2022. (Do not round intermediate calculations.)

	Depreciation Expense Building $21,600 Equipment $14,400 Vehicles $21,038

Answer 1

1). Depreciation on Building = (Cost * Residual Value) / Useful life
Depreciation for year 2021 = ($540,000 - 0) /25 * 9/12 = $16,200

Depreciation on Equipment = (Cost * Residual Value) / Useful life
Residual value = $200,000 * 10% = $20,000
Depreciation for year 2021 - ($200,000 - $20,000) /6 * 9/12 = $22,500

Depreciation on Vehicles :
Depreciation under SLM = ($180,000 - $15,000) / 10 = $16,500
Depreciation rate under SLM = $16,500 / ($180,000 - $15,000) = 10%
Dep. under double declining method = 10% * 2 = 20%
Depreciation for Year 2021 = $180,000 * 20% * 9/12 = $27,000

2). Journal entries are as follows:-

Depreciation expense for 2021 = ($104,000 - $10,400) /6 * 9/12 = $11,700
Depreciation expense for 2022 = ($104,000 - $10,400) /6 * 6/12 = $7,800
Total Accumulated depreciation = $11,700 + $7,800 = $19,500
Loss on sale = $104,000 - $84,000 - $19,500 = $500

Debit 7,800.00 Credit $ Date Account Titles Jun-29 Depreciation expense Accumulated Depreciation - Equipment (Depreciation expense for equipment sold) 7,800.00 Jun-29 Cash Accumulated Depreciation - Equipment Loss on sale of equipment Equipment (Entry for sale of equipment) $ $ $ 84,000.00 19,500.00 500.00 $ 104,000.00

3).

Depreciation on Building =
Depreciation for year 2021 = ($540,000 - 0) /25 = $21,600

Depreciation on Equipment =
Residual value = ($200,000 - $104,000) * 10% = $9,600
Depreciation for year 2022 - ($96,000 - $9,600) /6 = $14,400

Depreciation on Vehicles :
Book Value at end of 2021 = $180,000 - $27,000 = $153,000
Depreciation for year 2022 = $153,000 * 20% = $30,600