Question

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,565,000. Harding paid $770,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $814,000; Building, $2,420,000 and Equipment, $1,606,000. (Round your intermediate percentages to the nearest whole number: i.e 0.054231 = 5%. Do not round any other intermediate calculations.) Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,170,000 units over its 5-year useful life and has salvage value of $19,000. Harding produced 282,000 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?

Answer 1

The correct answer is $199,437

Step-by-step explanation:

Percentage of Cost attribute to hardware = Appraised estimation of equipment / Total assessed estimation of land, building and hardware

Percentage of Cost attribute to hardware = $1,606,000 / ($814,000 + $2,420,000 + $1,606,000)

Percentage of Cost attribute to hardware =33%

Cost at which hardware to be recorded = $2,565,000 × 33%

Cost at which hardware to be recorded = $846,450

depreciation cost for the hardware in the principal year = ($846,450 - $19,000) × 282000/1170000

depreciation cost for the hardware in the principal year = $199,437