On March 31, 2013, the Herzog Company purchased a factory complete with machiner
ID: 2499881 • Letter: O
Question
On March 31, 2013, the Herzog Company purchased a factory complete with machinery and equipment. The allocation of the total purchase price of $1,050,000 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 $ 125,000 N/A N/A Building 550,000 none 20 Machinery 190,000 12% of cost 8 Equipment 185,000 $ 13,000 4 Total $ 1,050,000 On June 29, 2014, machinery included in the March 31, 2013, purchase that cost $105,000 was sold for $85,000. 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 2013. (Do not round intermediate calculations.)
2. Prepare the journal entry to record the depreciation on the machinery sold on June 29, 2014, and the sale of machinery. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)
3. Compute depreciation expense on the building, remaining machinery, and equipment for 2014. (Do not round intermediate calculations.)
Explanation / Answer
1.
Asset Cost Estimated Residual Value Estimated Useful Life in Years
Land $ 125,000 N/A N/A
Building 550,000 none 20
Machinery 190,000 12% of cost= 22800 8
Equipment 185,000 $ 13,000 4
Total $ 1,050,000
Depreciation as per SLM = cost of asset - residual value / life of asset
Depreciation on building = 5500000 - 0 / 20 = 27500
Depreciation on machinery = 190000-22800 / 8 = 20900
Depreciation on equipment
Year
Digit
Depreciation
1
4
= (185000-13000) * 4 /10 = 68800
2
3
= (185000-13000) * 4 /10 = 51600
3
2
= (185000-13000) * 4 /10 = 34400
4
1
= (185000-13000) * 4 /10 = 17200
Total
15
172000
June 29, 2014, machinery included in the March 31, 2013, purchase that cost $105,000 was sold for $85,000.
value as on june29,2014 = cost -depreciation
Cost = 105000
Depreciation = (105000 - 12600)/8 *1.25 = 14437.5
value as on june29,2014 = 90562.5
sold for = 85000
value as on june29,2014 = 90562.5
loss on sale = 5562.5
Journal entry for 2014
cash dr. 85000
Loss on sale dr. 5562.5
depreciation dr. 2887.5
Machinery 93450
3. Depreciation expense for 2014
Depreciation on building = 5500000 - 0 / 20 = 27500
Depreciation on remaining machinery =
= (85000 - 10200) / 8 = 9350
Depreciation on equipment
= (185000-13000) * 4 /10 = 51600
Year
Digit
Depreciation
1
4
= (185000-13000) * 4 /10 = 68800
2
3
= (185000-13000) * 4 /10 = 51600
3
2
= (185000-13000) * 4 /10 = 34400
4
1
= (185000-13000) * 4 /10 = 17200
Total
15
172000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.