Question

Highsmith Rental Company purchased an apartment building early in 2018. 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	$	25,000		$	4,000		6
Refrigerators		20,000			6,000		5
Dishwashers		18,000			5,000		4

In 2021, four new refrigerators costing $3,200 were purchased for cash. The old refrigerators, which originally cost $2,500, were sold for $700.

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 refrigerators.

Answer 1

Part-1
Asset	Cost	Depreciable base	Estimated Life	Depreciation Amount
Stoves	$25,000	$21,000	6	$3,500
Refrigerator	$20,000	$14,000	5	$2,800
Dishwasher	$18,000	$13,000	4	$3,250
	$63,000	$48,000		$9,550

Group Depreciation Rate= $9550/$63000=15.16%

Dep. Exp for 2018 = 63000X 15.16%=$9551

Group Life= $48000/$9550= 5.03 Year

Part-2
Journal Entry
s.No.	Account Tittle	Debit	Credit
a.	Refrigerator	$3,200
	Cash		$3,200
	To Record Purchase of New Refre.
	Cash	$700
	Accum Depreciation	$1,800
	Refrigerator		$2,500