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	$	35,000		$	5,000		6
Refrigerators		30,000			2,000		5
Dishwashers		28,000			1,000		4

In 2021, two new refrigerators costing $3,700 were purchased for cash. The old refrigerators, which originally cost $3,500, were sold for $1,200.

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 refrigerators.

  

  

  

Answer 1

Asset	Cost	Residual Value	Depriciable Base	EstimatedLife(yrs.)	Depreciationper Year(straight line)
Stoves	35000	5000	30000	6	5000
Refrigerators	30000	2000	28000	5	5600
Dishwashers	28000	1000	27000	4	6750
Totals	93000	8000	85000		17350

Group depreciation rate =	17350/93000	18.66%
Group Life =	85000/17350	4.90	Years rounded

NO	Event	General Journal	Debit	Credit
1	1	Refrigerators	3700
		Cash		3700
2	2	Cash	1200
		Accumulated depreciation	2300
		Refrigerators		3500