Presented below is information related to Novak Manufacturing Corporation. Asset
ID: 2430530 • Letter: P
Question
Presented below is information related to Novak Manufacturing Corporation.
Asset
Cost
Estimated Salvage
Estimated Life (in years)
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. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Use Plant Assets related account.)
c) Prepare the entry to record the sale of asset D for cash of $5,520. It was used for 6 years, and depreciation was entered under the composite method. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Use Plant Assets related account.)
Asset
Cost
Estimated Salvage
Estimated Life (in years)
A $46,575 $6,325 10 B 38,640 5,520 9 C 41,400 4,140 9 D 21,850 1,725 7 E 27,025 2,875 6Explanation / Answer
Answer a)
Assets
Original Cost
Salvage Value
Depreciable value
Depreciable Life
SL Depreciation per Year
A
$ 46,575.00
$ 6,325.00
$ 40,250.00
10
$ 4,025.00
B
$ 38,640.00
$ 5,520.00
$ 33,120.00
9
$ 3,680.00
C
$ 41,400.00
$ 4,140.00
$ 37,260.00
9
$ 4,140.00
D
$ 21,850.00
$ 1,725.00
$ 20,125.00
7
$ 2,875.00
E
$ 27,025.00
$ 2,875.00
$ 24,150.00
6
$ 4,025.00
Total
$ 175,490.00
$ 20,585.00
$ 154,905.00
-
$ 18,745.00
Composite rate of Depreciation =
Total Depreciation per year/Total Original Cost
(18745/175490)
10.68%
Answer b)
Depreciation Expense-Plant Asset
$ 18,745.00
Accumulated Depreciation-Plant Asset
$ 18,745.00
(Depreciation charged @10.68% on composite Assets)
Answer c)
Cash
$ 5,520.00
Accumulated Depreciation-Plant Assets
$ 16,330.00
D Asset
$ 21,850.00
(Sale of asset D and difference booked as Accumulated Depreciation)
Note
In case of sale of asset which is depreciated under composite method, no Profit or loss is booked and the difference is booked as Accumulated depreciation.
In answer no (b) The amount of depreciation may comes to $18742.33 .This is because of round off of depreciation rate. Actual depreciation would be $18745.
Answer a)
Assets
Original Cost
Salvage Value
Depreciable value
Depreciable Life
SL Depreciation per Year
A
$ 46,575.00
$ 6,325.00
$ 40,250.00
10
$ 4,025.00
B
$ 38,640.00
$ 5,520.00
$ 33,120.00
9
$ 3,680.00
C
$ 41,400.00
$ 4,140.00
$ 37,260.00
9
$ 4,140.00
D
$ 21,850.00
$ 1,725.00
$ 20,125.00
7
$ 2,875.00
E
$ 27,025.00
$ 2,875.00
$ 24,150.00
6
$ 4,025.00
Total
$ 175,490.00
$ 20,585.00
$ 154,905.00
-
$ 18,745.00
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