On March 31, 2016, the Herzog Company purchased a factory complete with machiner

Question

On March 31, 2016, the Herzog Company purchased a factory complete with machinery 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:

On June 29, 2017, machinery included in the March 31, 2016, purchase that cost $100,000 was sold for $80,000. 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.

Prepare the journal entries to record the depreciation on the machinery sold on June 29, 2017, and the sale of machinery.

a. Record the depreciation on machinery sold.

b. Record the sale of machinery

On March 31, 2016, the Herzog Company purchased a factory complete with machinery 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:

Explanation / Answer

Answer:

a) Depreciation expense on machinery sold : [100000 - (100000*10%)]/8 = 11250

This is 1 year depreciation but we need 6 months depreciation because the machine has been in service from january 1, 2014 to june 29, 2014. Therefore,

11250*6/12 = 5625

Journal entry:

Depreciation expense Dr. 5625

To accumulated depreciation- machinery 5625

b) total accumulated depreciation till june 29,2014 on machinery = (11250*9/12) + 5625 = 8437.5+5625 = 14062.5

(Loss)/gain on machinery sold = [80000- (100000-14062.5)] = (5937.5)

Journal entry:

Cash Dr. 80000

Accumulated depreciation Dr. 14062.5

Loss on machinery sold Dr. 5937.5

To machinery.....................................100000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.