In its first year of business, Solinger Company purchased land, a building, and equipment on November 5, 2023, for $700,000 in total. The land was valued at $262,500, the building at $337,500, and the equipment at $150,000. Additional information on the depreciable assets follows:

Instructions

a. Allocate the purchase cost of the land, building, and equipment to each of the assets.

b. Solinger has a December 31 fiscal year end and is trying to decide how to calculate depreciation for assets purchased during the year. Calculate depreciation expense for the building and equipment for 2023 and 2024 assuming:

1. Depreciation is calculated to the nearest month. 

2. A half year’s depreciation is recorded in the year of acquisition.

c. Which policy should Solinger follow in the year of acquisition: recording depreciation to the nearest month or recording a half year of depreciation?

Taking It Further

Suppose that Solinger decided to use the units-of-production depreciation method instead of diminishing-balance for its equipment. How would this affect your answer to part (c) above?

Transcribed Image Text:

Asset Building Equipment Residual Value $15,000 15,000 Useful Life in Years 60 8 Depreciation Method Straight-line Double diminishing-balance