Question

On March 31, 2021, the Herzog Company purchased a factory complete with vehicles and equipment. The allocation of the total purchase price of $1,000,000 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 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: 1. Compute depreciation expense on the building, equipment, and vehicles for 2021. 2. 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. 3. Compute depreciation expense on the building, remaining equipment, and vehicles for 2022.

Answer 1

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