Highsmith Rental Company purchased an apartment building early in 2013. There ar

Question

Highsmith Rental Company purchased an apartment building early in 2013. There are 25 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. In 2016, two new refrigerators costing $3,000 were purchased for cash. The old refrigerators, which originally cost $2,100, were sold for $500. Required: Calculate the group depreciation rate, group life, and depreciation for 2013. Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators.

Explanation / Answer

Composite depreciation rate = total depreciation per year / total original cost

= 8150 / 51000= 15.98%

Composite Life = total depreciable cost / total depreciation per year

= 41000 / 8150 = 5.03 years

Depreciation for the year 2013 = $8150

item Original cost $ Salvage value Depreciable cost Depreciable life SL depreciation per year Stoves 21000 3000 18000 6 3000 Refrigerators 16000 4000 12000 5 2400 Dishwashers 14000 3000 11000 4 2750 TOTAL $51000 $41000 $8150

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