On March 31, 2013, the Herzog Company purchased a factory complete with machiner

Question

On March 31, 2013, the Herzog Company purchased a factory complete with machinery and equipment. The allocation of the total purchase price of $1,090,000 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 $ 145,000 N/A N/A Building 590,000 none 20 Machinery 150,000 12% of cost 8 Equipment 205,000 $ 16,000 6 Total $ 1,090,000 On June 29, 2014, machinery included in the March 31, 2013, purchase that cost $109,000 was sold for $89,000. 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.)

Explanation / Answer

Straight-line depreciation for buildings Depreciation for 2013 (Apr.- Dec) - 9 mths. ( PurchaseCost- Residual Value)/Estimated useful life ie. (590000-0)/20= 29500 (1 year Dep.) 9 mths depn. = 29500/12*9= 22125 Straight-line depreciation for Machinery Depreciation for 2013 (Apr.- Dec) - 9 mths. ( PurchaseCost- Residual Value)/Estimated useful life ie. (150000-18000)/8= 16500 (1 year Dep.) 9 mths depn. = 16500/12*9= 12375 Sum- of- the- years' digit method depreciation for Equipment Depreciation for 2013 (Apr.- Dec) - 9 mths. Sum of the Years' Digits = 1 + 2 + 3 + 4+5+6 = 6(6 + 1) ÷ 2 = 21 Depreciable Base = 205000-16000= 189000 Year ending Year Depreciable Depreciation Expense Accumulated Mar. Base Depreciation 2013 1 189000 6/21                         *                                                       189000 = 54000 54000 (1 year Dep.) 2014 2 189000 5/21                         *                                                       189000 = 45000 99000 2015 3 189000 4/21                         *                                                       189000 = 36000 135000 2016 4 189000 3/21                         *                                                       189000 = 27000 162000 2017 5 189000 2/21                         *                                                       189000 = 18000 180000 2018 6 189000 1/21                         *                                                       189000 = 9000 189000 189000 9 mths depn. = 54000/12*9= 40500 2. Journal entry to record the depreciation on the machinery sold on June 29, 2014, and the sale of machinery Mar.31/2014 Purchase cost 109000 Less:Depn. For 2013 (9 mths.) (12375/150000)*109000 8992.5 (Acc. Depn.) Jan. 1,2014 WDV 100007.5 Jun. 29,2014 Depn. For 6 mths. (16500/150000)*109000*6/12 5995 (Acc. Depn.) WDV 94012.5 Dec..31,2013 Depreciation- Machinery 8992.5 Accumulated depreciation- Machinery 8992.5 (Accounting of 2013-9 mths,. Depn) Jun..29,2014 Depreciation- Machinery 5995 Accumulated depreciation- Machinery 5995 (Accounting of 2014-6 mths,. Depn) Jun..29,2014 Cash 89000 Accumulated depreciation- Machinery 14987.5 Loss on sale of Machinery 5012.5 Machinery 109000 (Accounting of sale of machinery )

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