Question

Presented below is information related to Novak Manufacturing Corporation.

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				6

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.)

Answer 1

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.