Question

On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The allocation of the total purchase price of $1,020,000 to the various types of assets along with estimated useful lives and residual values are as follows: Estimated Useful Life in Years N/A 25 Asset Land Building Machinery Equipment Total Estimated Residual Value N/A none 12% of cost $14,000 Cost $ 110,000 520,000 220,000 170,000 $1.920.000 On June 29, 2019, machinery included in the March 31, 2018, purchase that cost $102,000 was sold for $82,000. Herzog uses the straight-line depreciation method for buildings and machinery and the sum-of-the-years'-digits method for equipment. Partial-year depreciation is calculated based on the number of months an asset is, in service. Required: 1. Compute depreciation expense on the building, machinery, and equipment for 2018. 2. Prepare the journal entries to record the depreciation on the machinery sold on June 29, 2019, and the sale of machinery 3. Compute depreciation expense on the building, remaining machinery, and equipment for 2019. Complete this question by entering your answers in the tabs below.

Answer 1

1)	Calculate depreciation expense on the building , machinery and equipment for 2018 :
	Here, Herzog uses the straight line depreciation method for Building and Machinery
	and sum of the years digits methods for Equipment
	Building:
	Depreciation expenses = (Cost - estimated residual value )/ Estimated useful life in years
	Depreciation expenses = ($ 520,000- $ 0 )/ 25 Years
	Depreciation expenses = $ 20,800 Per year
	(From March 31 to December 31 ) = 9 months
	so, Depreciation expenses for 9 months = $ 20,800 * 9 months /12 months
	Depreciation expenses for 9 months = $ 15,600
	Machinery :
	Depreciation expenses = (Cost - estimated residual value )/ Estimated useful life in years
	Depreciation expenses = ($ 220,000 - ($220,000 *12 % ) )/   10 years
	Depreciation expenses = ($ 220,000 - ($220,000 *12 % ) )/   10 years
	Depreciation expenses =   $ 19,360
	(From March 31 to December 31 ) = 9 months
	so, Depreciation expenses for 9 months = $ 19,360 * 9 months /12 months
	Depreciation expenses for 9 months = $ 14,520
	Equipment :
	Depreciation expenses = (Cost - estimated residual value )* sum of the years digits
	Depreciation expenses = ($ 170,000- $ 14,000 )* 5 years / 15
	Depreciation expenses = $ 52,000
	(From March 31 to December 31 ) = 9 months
	so, Depreciation expenses for 9 months = $ 52,000 * 9 months /12 months
	Depreciation expenses for 9 months = $ 39,000
	sum of the digits = {5 years * (5 years +1 )}/2 = 15

2)
	Date	General journal	Debit	Credit
	June 29,2019	Depreciation expense	$ 4,488
		Accumulated Depreciation -machinery		$ 4,488
		(to record Depreciation on machinery sold on June 29 ,2019)
		{$102,000 - ($ 102,000*12%)}/ 10 years = $ 8,976
		so, Depreciation expenses for 6 months = $ 8,976 *6 months/ 12 months
		Depreciation expense for 6 months = $ 4,488
		(From Jan 1 2019 to June 30 ,2019 )
	Date	General journal	Debit	Credit
	June 29,2019	Cash	$ 82,000
		Accumulated Depreciation -machinery (see note 1)
		Loss on sale of machinery
		Machinery		$ 102,000
		( to record sale of machinery on june 29,2019 )
		Note 1 :
		To find out Accumulated Depreciation -machinery
		Depreciation expenses for 9 months ..	$ 6,732
		(from march 31,2018 to December 31,2018)
		{$102,000 - ($ 102,000*12%)}/ 10 years * 9/12
		Add :Depreciation expenses for 6 months ..	$ 4,488
		(From Jan 1 2019 to June 30 ,2019 )
		{$102,000 - ($ 102,000*12%)}/ 10 years * 6/12
		Accumulated Depreciation -machinery	$ 11,220

3)	Calculate depreciation expense on the building , Remaining machinery and equipment for 2019 :
	Building:
	Depreciation expenses = (Cost - estimated residual value )/ Estimated useful life in years
	Depreciation expenses = ($ 520,000- $ 0 )/ 25 Years
	Depreciation expenses for 2019= $ 20,800
	Machinery :
	Depreciation expenses = (Cost - estimated residual value )/ Estimated useful life in years
	Depreciation expenses = ($ 118,000 - ($118,000 *12 % ) )/   10 years
	Depreciation expenses for 2019 =   $ 10,384
	Add :Depreciation expenses sold machinery for 6 months =$ 4,488
	(From Jan 1 2019 to June 30 ,2019 )
		{$102,000 - ($ 102,000*12%)}/ 10 years * 6/12
	So, Depreciation expenses for 2019 =   ($ 10,384+ $ 4,488 ) = $ 14,872
	(machinery cost - cost of machinery sold ) = ($ 220,000 - $102,000 )= $ 118,000
	Equipment :
	Depreciation expenses = (Cost - estimated residual value )* sum of the years digits
	Depreciation expenses = ($ 170,000- $ 14,000 )* (5 years / 15)* (3 months * 12 months) = $ 13,000
	(from Jan 1,2019 to march 31,2019 ) for 3 months
	Depreciation expenses = ($ 170,000- $ 14,000 )* (4 years / 15)* (9 months * 12 months) = $ 31,200
	( from April 1 2019 to December 31,2019 ) for 9 months
	So, Depreciation expenses for 2019 =   $ 13,000 +$ 31,200 = $ 44,200