Question

P 11-6 Depreciation methods, partial-year depreciation; sale of assets .LO11-2 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 Asset Cost Value Life (in years) Land $ 100.000 ΝΙΑ N/A Building 500,000 none Equipment 240.000 10% of cost Vehicles 160,000 $12.000 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. Compute depreciation expense as follows: Depreciation on Building using SLM method: Cost - Salvage SLM= Life of asset $500,000 - S0 25 =$20,000per year Depreciation expense = $20,000 × 9/12 = $15,000 Depreciation on Equipment using SLM method:

Cost -Salvage SLM= Life of asset $240,000 - ($240,000x10%) =$27,000 per year Depreciation expense = $27,000 x 9/12 = $20,250 %3D Depreciation on Vehicles using Double-Declining method: DDM =Cost xDepreciation rate =S160,000x -x200% life of Asset =$160,000x x200% =$160,000x25% =$40,000 2.

Working as follows: Cost -Salvage SLM= Life of asset S100,000– ($100,000x10%) =$11,250per year Depreciation expense = $11,250 x 6/12 = $5,625 a) Prepare Journal entries as follows: Date Credit Account titles Debit June. 29, 2022 Depreciation Expense $5,625 Accumulated Depreciation-Equipment (To record depreciation on equipment sold) $5,625 b)

Prepare Journal entries as follows: Debit Date Account titles Credit June. 29, 2022|Cash $80,000 Accumulated Depreciation-Equipment ($8438 + $5625) Loss on sale of equipment Equipment $14,063 $5,937 $100,000 Compute Loss on equipment as follows: Cost of equipment sold on june 29, 2022 Less: Depreciation for 2021 [($20250/S240000) x S100,000] Less: Depreciation for 2022 Carrying value as on June 29, 2022 Less: Sale Price Loss on sale $100,000 $8,438 $5,625 S85,937 $80,000 S5,937

3. Compute depreciation expense as follows: Depreciation on Building using SLM method: Cost - Salvage SLM =. Life of asset $500,000 - SO 25 =$20,000 per year Depreciation on Equipment using SLM method: Cost -Salvage SLM =. Life of asset $140,000– ($140.000 x10%) =$15,750per year

Depreciation on Vehicles using Double-Declining method: DDM= Cost xDepreciation rate = ($160,000-S40,000)×25% =$30,000