Question

Highsmith Rental Company purchased an apartment building early in 2021. There are 20 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 Stoves Refrigerators Dishwashers Cost $27,000 22,000 20,000 Residual Service Life Value (in Years) $3,000 7,000 6,000 In 2024, three new refrigerators costing $3,300 were purchased for cash. In that same year, the old refrigerators, which originally cost $2,700, were sold for $800. Required: 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the group depreciation rate, group life, and depreciation for 2021. (Round "Group depreciation rate" and "Group life" answers to 2 decimal places.) % Group depreciation rate Group life Depreciation for 2021 (Straight Line) years

Answer 1

Solution.

	1. Computation of Group depreciation rate, group life and depreciation for 2021.
	Assets	Original	Residual	Depreciation	Estimated	Depreciation
		Cost	Value	Cost	Life-Years	per year-SLM
	Stoves	$    27,000	$       3,000	$      24,000	6	$           4,000
	Refrigerators	$    22,000	$       7,000	$      15,000	5	$           3,000
	Dishwashers	$    20,000	$       6,000	$      14,000	4	$           3,500
	Total	$    69,000	$     16,000	$      53,000		$         10,500
Group Depreciation Rate = Total depreciation per year ÷ Total original cost
Group depreciation rate = $10,500 ÷ $69,000 = 15.22% [15.217, rounded to 15.22]
Group life = Total depreciation cost ÷ Total depreciation per year
Group life = $53,000 ÷ $10,500 = 5.05 years
Depreciation for 2021 = Original Cost × Group Depreciation Rate
Depreciation for 2021 = $69,000 × 0.1522 = $10,501.8  or $10,500
Note- depreciation for 2021, $10,501.8 is $1.8 more than amount in table due to rounding.
Note: SLM-means Straight line method
2. Journal entries for recording purchase of new refrigerator and sale of old one.
Date	Account Tittle				Debit	Credit
2024	Stove, refrigerator and dishwasher				$         3,300
	Cash					$           3,300
	To record purchase of new refrigerator
2024	Accumulated Depreciation				$         2,100
	Cash				$           800
	Stove, refrigerator and dishwasher					$           2,700
	To record sale of old refrigerator
Note: The refrigerator is retired before its average service life (5.05 years) and the loss on
disposal is buried to accumulated depreciation.