ne Ch 5-6 Help Save&Exit; Submit Harding Corporation acquired real estate that c

Question

ne Ch 5-6 Help Save&Exit; Submit Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,755,000 Harding paid $840,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $888000. Building. $2,640000 and Equipment, $1752,000. (Round your intermediate percentages to the nearest whole number: i.e 0.054231-5%. Do n t round any other intermedate calculations.) Assume that Harding uses the units-of production method when depreciating its equipment. Harding estmates that the purchased equipment will produce 1,190.000 units over its 5-year useful life and has salvage value of $19,000. Harding produced 284,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year? Multiple Choice $217654 212.439 7 8

Explanation / Answer

1) $212439 ,

Cost of Equipment = Cost of land ,building and equipment * $1752000 / $5280000

= $2755000 * $1752000 / $5280000

= $2755000 * 33%

= $909150

   Depreciation expense in first year of operation = number of units produce in first year / Total number of units during life of assets * [cost - salvage value]

= 284000 / 1190000 * [$909150 - $19000]

= 284000 / 1190000 * $890150

= $212439

2) $91460 ,

Cost recorded in asset account = net price of machine (after cash discount) + Freight cost + Installation cost

   = 87000 * (100%-2%) + 2600 + 3600

= $91460

Note:-   Insurance cost for the one year of operation does not get capitalised to asset cost

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