Presented below is information related to Waterway Manufacturing
Corporation.
Asset |
Cost |
Estimated Salvage |
Estimated Life (in years) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
A |
$53,800 | $6,100 | 10 | |||||||
B |
32,200 | 5,200 | 9 | |||||||
C |
36,500 | 4,100 | 9 | |||||||
D |
19,000 | 1,500 | 7 | |||||||
E |
24,000 | 3,300 | 6 |
(A) Compute the rate of depreciation per year to be applied to
the plant assets under the composite method. (Round
answer to 2 decimal place, e.g. 4.83%.)
(B) Prepare the adjusting entry necessary at the end of the year to
record depreciation for the year.
(C)Prepare the entry to record the sale of asset D for cash of $5,400. It was used for 6 years, and depreciation was entered under the composite method.
SOLUTION
A. Depreciation = (Cost - Salvage value) / Estimated useful life
Depreciation of Asset A = (53,800 - 6,100) / 10 = 4,770
Depreciation of Asset B = (32,200 - 5,200) / 9 = 3,000
Depreciation of Asset C = (36,500 - 4,100) / 9 = 3,600
Depreciation of Asset D = (19,000 - 1,500) / 7 = 2,500.
Depreciation of Asset E = (24,000 - 3,300) / 6 = 3,450
Annual total depreciation = 4,770 + 3,000 + 3,600 + 2,500 + 3,450 = 17,320
Annual total cost = 53,800 + 32,200 + 36,500 + 19,000 + 24,000 = 165,500
Composite depreciation rate = Annual total depreciation / Annual total cost
= 17,320 / 165,500 = 10.47%
B. Journal entry
Accounts titles and Explanation | Debit ($) | Credit ($) |
Depreciation expense | 17,328 | |
Accumulated depreciation | 17,328 |
Depreciation = 165,500 * 10.47% =17,328
C.
Accounts titles and Explanation | Debit ($) | Credit ($) |
Cash | 5,400 | |
Accumulated depreciation | 13,600 | |
Asset D | 19,000 |
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