Question

In: Accounting

Highsmith Rental Company purchased an apartment building early in 2021. There are 15 apartments in the...

Highsmith Rental Company purchased an apartment building early in 2021. There are 15 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 $ 43,000 $ 4,000 6
Refrigerators 38,000 6,000 5
Dishwashers 36,000 5,000 4


In 2024, two new refrigerators costing $4,100 were purchased for cash. In that same year, the old refrigerators, which originally cost $4,300, were sold for $1,600.

Questions:
1. Calculate the group depreciation rate, group life, and depreciation for 2021.
2. Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators.

Solutions

Expert Solution

Answer:
1)
Appliance Cost
(A)
Residual Value
(B)
Depreciable Base
C = (A- B)
Useful Life
(D)
Depreciation per year
(Straight line Method)
( C /D )
Stove $ 43,000 $ 4,000 $ 39,000 6 $ 6,500
Refrigrator $ 38,000 $ 6,000 $ 32,000 5 $ 6,400
Dishwasher $ 36,000 $ 5,000 $ 31,000 4 $ 7,750
Total $ 117,000 $ 15,000 $ 102,000 $ 20,650
Group Depreciation rate Total Depreciation per year
                                / Total Cost
$ 20,650 / $ 117,000 17.65%
Group Life Total Depreciable Base
               / Depreciation per year
$ 102,000 / $ 20,650 4.94 Years
Depreciation for 2021 $ 20,650
Event Account Titles and Explanation Debit (in $) Credit ( in $)
1 Refrigerator / Equipment / Machine $ 4,100
             Cash $ 4,100
(To record the Purchase of refrigerator)
2 Cash $ 1,600
Accumulated Depreciation   - Bal. Fig. $ 2,700
          Refrigerator $ 4,300
(To record the Sale of old refrigerator)

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