Question

On March 31, 2013, the Herzog Company purchased a factory, complete with machinery and equipment.The allocation of the total purchase price of $1,000,000 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 YearsLand $100,000 - -Building 500,000 0 25Machinery 240,000 10% of cost 8Equipment 160,000 13,000 6Total $1,000,000 On June 29, 2014, machinery included in the March 31, 2013 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.Required:1. Compute the depreciation expense on the building, machinery and equipment for 2013.2. Prepare the journal entry to record the depreciation on the machinery sold on June 29, 2014 and the sale of machinery.3. Compute the depreciation expense on the building, remaining machinery and equipment for 2014.

Answer 1

Answer:

       HERZOG COMPANY

1. Depreciation for the year 2013

Building =   $500,000/25  * 9/12=   $15,000

Machinery = ($240,000- 24,000)/8*3/12  +  ($140,000 - 14,000)/8*6/12 = $14,625

Equipment =  6/21 *(160,000 -13,000)*9/12  =  $31,500

2.   Journal entries

 Date          Description                                              DR                      CR

June 29       Disposal of machinery Account        $100,000

                    Machniery Account                                                  $100,000

           Being the cost of machinery disposed

June 29        Accumulated depreciation            2,813

                    Disposal of machinery account                             2,813

          Being the total depreciation on the machinery sold

June 29         Cash                                                80,000

                     Disposal of machniery account                         80,000

                 Being the amount realized on the machinery sold

June 29        Profit and loss account                    17,187

                  Disposal of machinery account                            17,187

          Being the loss on the machinery sold

3.     Depreciation for the year 2014

Building   =  $500,000/ 25   =   $20,000

Machinery =  $140,000 - 14,000)/6  =    $21,000

Equipment  =   5/21 *(160,000 -13,000) = $35,000        

Explanation: