Highsmith Rental Company purchased an apartment building early in 2018. There are 20 apartments in the building and each is furnished with major kitchen appliances. The company has decided to use the group depreciationmethod for the appliances. The following data are available:Appliance CostResidualValueService Life(in years)Stoves $15,000 $3,000 6Refrigerators 10,000 1,000 5Dishwashers 8,000 500 4In 2021, three new refrigerators costing $2,700 were purchased for cash. The old refrigerators, which originallycost $1,500, were sold for $200.Required:1. Calculate the group depreciation rate, group life, and depreciation for 2018.2. Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerator
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Highsmith Rental Company purchased an apartment building early in 2018. There are 20 apartments in the building and each is furnished with major kitchen appliances. The company has decided to use the group
method for the appliances. The following data are available:
Appliance Cost
Residual
Value
Service Life
(in years)
Stoves $15,000 $3,000 6
Refrigerators 10,000 1,000 5
Dishwashers 8,000 500 4
In 2021, three new refrigerators costing $2,700 were purchased for cash. The old refrigerators, which originally
cost $1,500, were sold for $200.
Required:
1. Calculate the group depreciation rate, group life, and depreciation for 2018.
2. Prepare the
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