Question

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.

Answer 1

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)