Question

Highsmith Rental Company purchased an apartment building early in 2018. There are 20 apartments in the building and each is furnished with major kitchen appliances. The company has decided to use the group depreciation method for the appliances. The following data are available:

Appliance	Cost			Residual Value			Service Life (in Years)
Stoves	$	27,000		$	3,000		6
Refrigerators		22,000			7,000		5
Dishwashers		20,000			6,000		4

In 2021, three new refrigerators costing $3,300 were purchased for cash. The old refrigerators, which originally cost $2,700, were sold for $800.

Required:
1. Calculate the group depreciation rate, group life, and depreciation for 2018.
2. Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators.

Answer 1

1. Calculate the group depreciation rate, group life, and depreciation for 2018 Appliance Cost Salvage Value Depreciable Cost Life Of Asset Depreciation Per Year d-b-c f-d/e b a C 3,000 $ 7,000 $ $ 6 $ 27,000 $ Stoves 24,000 4,000 $ Refrigerators 22,000 $ 15,000 3,000 4 $ Dishwashers 20,000 $ 6,000 $ 14,000 3,500 Total $ 69,000 53,000 10,500 Depreciation Rate For All Asstes Total Depreciation Per Year/Total Cost $10500/69000 15.22%

Group Life Total Depreciable Cost/Total Dep Per Year -$53000/10500 5.048 Years Dpreciation for 2018 -$10500

Journal Entry Debit Credit 1) Refrigerator 3,300 Cash 3,300 (to record new refrigerator) $ 2) Cash 800.00 $ 1,900.00 Accumulated Dep. $ Refrigerator 2,700.00 (to record sell of lod refrigerator)