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:
A . Depreciation expense on the building, equipment, and vehicles for 2022
Depreciation on Building
= ( (Cost -Residual value)/useful life )*9/12
=($500000-0)/25 *9/12
=Depreciation on Building = $15,000 Per Year
Depreciation on Equipment
= ( (Cost -Residual value)/useful life )*9/12
=(240000-10% of 240000)/8 *9/12
=20250 Per Year
Depreciation on Vehicle
Depreciation Rate = Depreciation rate under Straight Line * 2
= (1 / Useful life) * 2
=(1/8)*2=25%
Depreciation=Cost*Rate*9/12 months
=160000*25%*9/12
Depreciation on vehicle=$30000
B. Journal entries for 2022 to record (a) depreciation on the equipment sold on June 29, 2022
JUne 29 | Depreciation expense | 5625 | |
Accumulated depreciation -equipment | 5625 | ||
(Depreciation for equipment sold) | |||
JUne 29 | Cash | 80000 | |
Accumulated depreciation |
|||
loss on sale of equipment | |||
Equipment | 100000 | ||
(being sale of equipments) |
Depreciation expense for 2022 = ($100,000 - $10,000) /8 * 6/12 = $5625
Depreciation expense for 2021 = ($100,000 - $10,000) /8 * 9/12 = $ 8438
Total Accumulated depreciation = $ 8437.5 + $ 5625 = $ 14063
Loss on sale = $100,000 - $80,000 - $ 14062.5 = $ 59378
C. Depreciation expense on the building, remaining equipment, and vehicles for 2022.
Depreciation on Building =
Depreciation for year 2021 = ($500,000 - 0) /25 = $20000
Depreciation on Equipment =
Residual value = ($240,000 - $100,000) * 10% = $14000
Depreciation for year 2022 - ($140000 - $14000) /8 = $ 15750
Depreciation on Vehicles :
Book Value at end of 2021 = $160,000 - $30,000 = $130,000
Depreciation for year 2022 = $130,000 * 25% = $32500
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: Estimated Residual Estimated Useful Value Life (in years) Asset Cost 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...
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