On March 31, 2021, the Herzog Company purchased a factory complete with vehicles 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 Years) Land   100,000 N/A   N/A         Building   500,000 none   25         Equipment   240,000 10% cost   8         Vehicles   160,000 12,000   8           Total   1,000,000           On June 29, 2022, equipment included in the March 31, 2021, purchase that cost $100,000 was sold for $80,000. Herzog uses the straight-line depreciation method for buildings and equipment and the double-declining-balance method for vehicles. Partial-year depreciation is calculated based on the number of months an asset is in service. Required: Compute depreciation expense on the building, equipment, and vehicles for 2021. Prepare the journal entries to record the depreciation on the equipment sold on June 29, 2022, and the sale of equipment. Compute depreciation expense on the building, remaining equipment, and vehicles for 2022.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On March 31, 2021, the Herzog Company purchased a factory complete with vehicles 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 Years)
Land   100,000 N/A   N/A        
Building   500,000 none   25        
Equipment   240,000 10% cost   8        
Vehicles   160,000 12,000   8          
Total   1,000,000          

On June 29, 2022, equipment included in the March 31, 2021, purchase that cost $100,000 was sold for $80,000. Herzog uses the straight-line depreciation method for buildings and equipment and the double-declining-balance method for vehicles. Partial-year depreciation is calculated based on the number of months an asset is in service.

Required:

  1. Compute depreciation expense on the building, equipment, and vehicles for 2021.
  2. Prepare the journal entries to record the depreciation on the equipment sold on June 29, 2022, and the sale of equipment.
  3. Compute depreciation expense on the building, remaining equipment, and vehicles for 2022.
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