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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 Years |
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| Land | $ | 100,000 | N/A | N/A | ||||
| Building | 500,000 | none | 25 | |||||
| Machinery | 240,000 | 10% of cost | 8 | |||||
| Equipment | 160,000 | $ | 13,000 | 6 | ||||
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| Total | $ | 1,000,000 | ||||||
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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.
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