Chapter 11 Exercise 11-9 Highsmith Rental Company purchased an apartment buildin

ID: 2359169 • Letter: C

Question

Chapter 11 Exercise 11-9 Highsmith Rental Company purchased an apartment building early in 2013. 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 15,000 3,000 6 Refrigerators 10,000 1,000 5 Dishwashers 8,000 500 4 In 2016, three new refrigerators costing 2,700 were purchased for cash. The old refrigerators, which originally cost 1,500, were sold for 200. Required: 1) Calculate the group depreciation rate, group life, and depreciation for 2013. 2) Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators. Thank you.

Explanation / Answer

Asset

Cost

Residual

Value

Depreciable

Base

Estimated

Life(yrs.)

Depreciation

per Year

(straight line)

Stoves

$15,000

$3,000

$12,000

$2,000

Refrigerators

10,000

1,000

9,000

1,800

Dishwashers

8,000

500

7,500

1,875

Totals

$33,000

$4,500

$28,500

$5,675

Group depreciation rate

$ 5,675 / 33,000 = 17.2% (rounded)

Group life

$28,500 / 5,675= 5.02 years (rounded)

$ 5,675